Photronics(PLAB) - 2025 Q2 - Quarterly Report

Front Matter Glossary of Terms and Acronyms This section defines key technical and financial acronyms and terms like AMOLED, FPD, and IC, distinguishing between high-end and mainstream photomasks - High-end IC photomasks are defined as those servicing nodes at 28nm or smaller[14] - High-end FPD photomasks are defined as AMOLED, G10.5+, and LTPS photomasks[14] Forward-Looking Statements This section cautions that forward-looking statements are subject to risks and uncertainties, advising readers to refer to Form 10-K risk factors - The company's forward-looking statements are qualified by risk factors provided in the Form 10-K for the year ended October 31, 2024, and this Form 10-Q[17] - The company does not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances[17] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents unaudited condensed consolidated financial statements, highlighting decreased cash, a significant net income drop due to foreign currency, and share repurchases Condensed Consolidated Balance Sheets Total assets slightly decreased to $1.703 billion as of May 4, 2025, with cash and equivalents down, while total equity increased Condensed Consolidated Balance Sheet Highlights (in thousands of USD) | Account | May 4, 2025 | October 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $530,708 | $598,485 | | Total current assets | $855,806 | $931,062 | | Total assets | $1,703,032 | $1,712,059 | | Liabilities & Equity | | | | Total current liabilities | $166,783 | $183,811 | | Total liabilities | $206,263 | $231,300 | | Total equity | $1,496,769 | $1,480,759 | Condensed Consolidated Statements of Income Revenue for Q2 FY25 was $211.0 million, with net income significantly impacted by a $31.1 million foreign currency loss Three Months Ended Financial Performance (in thousands of USD, except EPS) | Metric | May 4, 2025 | April 28, 2024 | | :--- | :--- | :--- | | Revenue | $210,992 | $217,000 | | Gross Profit | $77,906 | $79,251 | | Operating Income | $55,717 | $56,052 | | Foreign currency transactions impact, net | $(31,111) | $14,766 | | Net income attributable to Photronics, Inc. | $8,861 | $36,251 | | Diluted EPS | $0.15 | $0.58 | Six Months Ended Financial Performance (in thousands of USD, except EPS) | Metric | May 4, 2025 | April 28, 2024 | | :--- | :--- | :--- | | Revenue | $423,130 | $433,334 | | Gross Profit | $153,441 | $158,506 | | Operating Income | $107,894 | $113,542 | | Net income attributable to Photronics, Inc. | $51,712 | $62,431 | | Diluted EPS | $0.84 | $1.00 | Condensed Consolidated Statements of Cash Flows Net cash provided by operations was $109.9 million for the six months ended May 4, 2025, with significant cash used for stock repurchases Six Months Ended Cash Flow Summary (in thousands of USD) | Cash Flow Activity | May 4, 2025 | April 28, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $109,919 | $117,994 | | Net cash used in investing activities | $(80,847) | $(114,704) | | Net cash used in financing activities | $(95,072) | $(4,727) | | Net decrease in cash | $(67,697) | $(5,276) | - The company repurchased $76.7 million of its common stock in the first six months of fiscal 2025, a significant use of cash in financing activities[31] Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, the PDMCX joint venture, debt, share-based compensation, and the share repurchase program - The company 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[33] - The company's China IC business operates through a joint venture (PDMCX) with DNP, in which Photronics holds a 50.01% interest, with its results consolidated in Photronics' financial statements[53][57] - The company recognizes the majority of its revenue over time, as photomasks are manufactured to customer specifications with no alternative use[64] - In Q2 FY25, the company began granting restricted stock units (RSUs) in addition to its historical restricted stock awards (RSAs)[84] - The company repurchased 3.8 million shares for $76.7 million in the first six months of fiscal 2025, with $23.3 million remaining available under the share repurchase authorization as of May 4, 2025[101] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 FY25 financial results, noting a 2.8% revenue decrease, net income impact from foreign currency loss, and active share repurchases Results of Operations Q2 FY25 revenue decreased to $211.0 million year-over-year, with gross margin improving but net income significantly impacted by foreign currency loss Revenue by Product Type - Q2 FY25 vs. Prior Periods (in millions of USD) | Product Type | Q2 FY25 Revenue | Change vs Q1 FY25 | % Change | Change vs Q2 FY24 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Total IC | $155.9 | $1.9 | 1.2% | $(5.0) | (3.1)% | | High-end IC | $59.3 | $(0.8) | (1.3)% | $1.3 | 2.2% | | Mainstream IC | $96.6 | $2.7 | 2.9% | $(6.3) | (6.1)% | | Total FPD | $55.1 | $(3.0) | (5.3)% | $(1.0) | (1.7)% | | High-end FPD | $43.6 | $(6.1) | (12.2)% | $(4.4) | (9.1)% | | Mainstream FPD | $11.5 | $3.1 | 35.3% | $3.4 | 42.1% | | Total Revenue | $211.0 | $(1.1) | (0.5)% | $(6.0) | (2.8)% | - Gross margin increased by 40 basis points YoY in Q2 FY25, primarily due to decreased labor, benefits, and material costs, offsetting lower revenue[120] - Other income (expense) was significantly impacted by foreign currency fluctuations, swinging from a $20.5 million income in Q2 FY24 to a $25.8 million expense in Q2 FY25, mainly due to unfavorable movements of the New Taiwan dollar and South Korean won against the U.S. dollar[126] Liquidity and Capital Resources The company maintains $530.7 million in cash, plans $200 million in FY225 capital expenditures, and actively repurchases shares - As of May 4, 2025, cash and cash equivalents were $530.7 million, with $431.9 million held by foreign subsidiaries[132] - Estimated capital expenditures for fiscal year 2025 are approximately $200 million, targeted towards increasing operating capability and efficiency in Asia and the U.S[134] - The company repurchased 3.8 million shares for $76.7 million during the six months ended May 4, 2025, with $23.3 million remaining under the share repurchase authorization[135] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company faces significant foreign currency exchange rate risk, with a hypothetical 10% adverse movement resulting in a $71.3 million pre-tax loss - The company's primary net foreign currency exposures as of May 4, 2025, were to the South Korean won, Japanese yen, New Taiwan dollar, and Chinese yuan[149] - A hypothetical 10% adverse movement in the value of currencies different from the functional currencies would have resulted in a net unrealized pre-tax loss of $71.3 million as of May 4, 2025[149] - Interest rate risk was not material as of the balance sheet date because there were no variable rate borrowings outstanding[150] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[152] - No material changes were made to the company's internal control over financial reporting during the second fiscal quarter of 2025[153] PART II. OTHER INFORMATION Item 1A. Risk Factors No material changes to risk factors from the 2024 Form 10-K, except for a new risk concerning tariffs and global trade policies - A new risk factor was added concerning tariffs and global trade policies[155] - New tariffs announced in Q2 FY25 on imports from China, Taiwan, South Korea, Japan, and the EU could increase costs, reduce demand, and negatively affect customer purchasing behavior[156] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 3.6 million shares in Q2 FY25, with $23.3 million remaining under the current authorization Issuer Purchases of Equity Securities (Q2 FY25) | Period | Total Number of Shares Purchased | Average Price Paid Per share | Dollar Value of Shares That May Yet Be Purchased (in millions of USD) | | :--- | :--- | :--- | :--- | | February 3, 2025 – March 2, 2025 | - | $ - | $95.4 | | March 3, 2025 – March 30, 2025 | 2,262,912 | $21.09 | $47.6 | | March 31, 2025 – May 4, 2025 | 1,352,287 | $17.99 | $23.3 | | Total | 3,615,199 | | | - In August 2024, the Board of Directors increased the share repurchase program authorization to $100 million[157] Item 5. Other Information No Rule 10b5-1 trading plans were adopted or terminated, and the company entered into indemnification agreements with directors - On June 9, 2025, the Company entered into customary indemnification agreements with each of its directors, requiring the company to provide indemnification and advance expense payments under certain circumstances[163] - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the quarter ended May 4, 2025[162] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including indemnification agreements, CEO/CFO certifications, and XBRL data - Key exhibits filed include the Form of Director Indemnification Agreement (10.1), CEO/CFO certifications (31.1, 31.2, 32.1, 32.2), and Inline XBRL documents[165] Signatures The Form 10-Q was signed by Eric Rivera, EVP and CFO, on June 11, 2025 - The Form 10-Q was signed by Eric Rivera, EVP and CFO, on June 11, 2025[167]