Photronics(PLAB) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (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 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 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 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 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] - The company consolidates its China-based IC joint venture, PDMCX, as it is deemed the primary beneficiary of the Variable Interest Entity (VIE)[48] 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] - Gross margin increased 60 basis points year-over-year to 36.6%, primarily due to higher revenue and a favorable product mix[116] Liquidity and Capital Resources 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] - Estimated capital expenditures for the full fiscal year 2024 are approximately $140 million, aimed at enhancing IC capacity and efficiency[126] - As of January 28, 2024, approximately $31.7 million was available for share repurchases under the board-authorized program[127] Non-GAAP Financial Measures 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 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] - 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] - 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] Item 4. Controls and Procedures 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] - No material changes occurred in the company's internal control over financial reporting during the first fiscal quarter[149] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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 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] Item 6. Exhibits 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]