Summary of Photronics FY Conference Call Company Overview - **Company**: Photronics (NasdaqGS: PLAB) - **Industry**: Semiconductor and Flat Panel Display (FPD) manufacturing - **Established**: 1969 - **Revenue Composition**: Approximately 80% of revenue originates from Asia, with 17% from the United States and a small percentage from Europe [3][4][5] Financial Performance - **Operating Cash Flow**: Approximately 25% to 26% of total revenue over the trailing 12 months, indicating improved cash flow generation [3] - **Market Size**: The total photomask market is about $6 billion, with projections suggesting it could grow to $10 billion by 2030 if the semiconductor industry reaches $1 trillion [16][17] - **Current Revenue**: Approximately $600 million, with potential to double to about $1.2 billion by 2030 if market conditions hold [17] Business Segments - **Semiconductor Segment (IC)**: Represents about half of the revenue, focusing on high-end photomasks for advanced chip designs [3][5] - **Flat Panel Display Segment (FPD)**: Accounts for about 25% of the business, with increasing complexity in display designs driving demand [15][24] Industry Trends - **Regionalization and Reshoring**: Post-COVID, there is a trend towards diversifying semiconductor manufacturing away from China, with significant investments in the U.S. and Southeast Asia [9][21] - **Node Migration**: The industry is moving towards smaller geometries, with increasing mask set values as designs become more complex [22][23] Competitive Landscape - **Market Share**: Photronics holds about one-third of the merchant photomask market, with captives now representing 63% of the total market [12][27] - **Valuation Discrepancy**: Photronics has a higher valuation compared to some competitors despite similar revenue figures, indicating potential for market re-evaluation [27] Investment and Expansion - **U.S. Facilities**: Investments are being made to expand capabilities in Boise, Idaho, and Allen, Texas, to meet customer demand for advanced nodes [10][19] - **Asia Investments**: Additional investments are planned in Asia to capture more market share, particularly in non-JV facilities [18][21] Customer Base - **Key Customers**: Major semiconductor manufacturers such as Samsung, TSMC, and Intel are primary customers, with a focus on those that manufacture chips rather than design them [6][13] - **China Exposure**: Approximately 25% of revenue comes from China, split between IC and FPD, with efforts to diversify revenue sources [20][21] Challenges and Opportunities - **EUV Technology**: The company currently lacks EUV capabilities, which are critical for producing the most advanced photomasks, posing a challenge for capturing leading-edge business [12][13] - **Market Dynamics**: Increased complexity in semiconductor designs is driving demand for more photomasks, presenting opportunities for growth [32][36] Conclusion Photronics is positioned to benefit from the growing semiconductor market, with strategic investments in U.S. and Asian facilities aimed at enhancing production capabilities and diversifying revenue streams. The company faces challenges related to advanced technology requirements but has opportunities for growth through increased demand for complex chip designs and regional manufacturing shifts.

Financial Data and Key Metrics Changes - The company achieved second quarter sales of $211 million, which was in the middle of the guidance range, representing a 3% year-over-year decline [7][16] - Non-GAAP diluted EPS was reported at $0.40, while diluted GAAP EPS attributable to shareholders was $0.15 [20] - Gross margin was 37%, in line with the quarterly average over the past three years, and operating margin improved to 26%, above guidance [19][20] Business Line Data and Key Metrics Changes - Integrated Circuit (IC) revenue was $156 million, down 3% year-over-year, with high-end revenue increasing 2% year-over-year, representing 38% of IC revenue [16][19] - Flat Panel Display (FPD) revenue was $55 million, declining 2% year-over-year, with seasonal demand expected to uplift later in the quarter [18][19] Market Data and Key Metrics Changes - Revenue from IC joint ventures in China and Taiwan remained healthy, while revenue from the U.S. declined sequentially due to lower-end design node weakness [19] - The company noted a broad-based weakness in mainstream markets, particularly in Europe, which is heavily reliant on automotive and industrial microcontrollers [30] Company Strategy and Development Direction - The company is focusing on capacity expansion in the U.S. to support reshoring semiconductor production and is strategically positioned to benefit from the transition to higher-end nodes [8][11] - The management emphasized the importance of geographic footprint as a strategic asset to mitigate tariff costs and support global customers [12][19] Management Comments on Operating Environment and Future Outlook - Management expressed caution regarding near-term demand due to macroeconomic uncertainties and tariff dynamics, expecting third quarter revenue to be in the range of $200 million to $208 million [23][47] - The company remains optimistic about the long-term health and growth potential, as indicated by the $72 million spent on share repurchases [22][48] Other Important Information - The CEO announced retirement after three years, with George Makrokastas appointed as the new CEO, focusing on operational execution and profitable growth [12][14] - The company plans to spend $200 million in CapEx for fiscal 2025, with a focus on capacity, capability, and end-of-life tool initiatives [21] Q&A Session Summary Question: Insights on mainstream business and supply-demand dynamics - Management noted that the mainstream market remains weak due to low wafer fab utilization among aged fab customers, particularly in power, industrial, and consumer sectors [25][26] Question: Weakness in Asia and its impact - The weakness is not confined to Asia; it is broad-based, with Europe showing significant weakness due to its reliance on automotive and industrial applications [30] Question: Year-over-year earnings impact - The largest impact on earnings year-over-year is attributed to pricing pressures in the mainstream market, although product mix strategies are being employed to mitigate this [32][33] Question: Priorities for the new CEO - The new CEO indicated a focus on cost structure, driving revenue, and gaining market share, emphasizing an orderly transition rather than a wholesale change [39][40] Question: Capacity expansion versus regionalization - The company will evaluate opportunities in the U.S. while balancing growth in Asia, particularly in response to geopolitical issues and reshoring efforts [46] Question: Share repurchase strategy - The company will remain opportunistic with the existing share repurchase authorization and will consider future expansions based on investment opportunities [48]

Core Viewpoint - Photronics, Inc. reported its second-quarter fiscal 2025 financial results, revealing a decline in revenue and net income, while announcing a leadership transition with Dr. Frank Lee stepping down as CEO and Mr. George Macricostas taking over the role [1][2][8]. Financial Performance - Revenue for the second quarter was $211.0 million, a decrease of 3% year-over-year and 1% sequentially [8]. - GAAP net income attributable to Photronics, Inc. shareholders was $8.9 million, or $0.15 per diluted share, compared to $36.3 million, or $0.58 per diluted share, in the second quarter of 2024 [8]. - Non-GAAP net income attributable to Photronics, Inc. shareholders was $24.3 million, or $0.40 per diluted share, down from $28.7 million, or $0.46 per diluted share, in the same quarter last year [8][19]. - Integrated Circuit (IC) revenue was $155.9 million, down 3% year-over-year but up 1% sequentially [8]. - Flat Panel Display (FPD) revenue was $55.1 million, down 2% year-over-year and 5% sequentially [8]. Cash Flow and Shareholder Returns - Cash generated from operating activities was $31.5 million, with $60.5 million invested in organic growth through capital expenditures [8]. - The company returned $72 million to shareholders through stock repurchases during the quarter [2][8]. - Cash, cash equivalents, and short-term investments at the end of the quarter totaled $558.4 million [8]. Guidance for Future Performance - For the third quarter of fiscal 2025, Photronics expects revenue to be between $200 million and $208 million, with non-GAAP net income attributable to shareholders projected to be between $0.35 and $0.41 per diluted share [4]. Leadership Transition - Dr. Frank Lee will continue to manage the company's Asia operations and remain Chairman and President of Photronics' PDMC subsidiary in Taiwan [1][2]. - Mr. George Macricostas has assumed the role of Chief Executive Officer while remaining Chairman of the Board [1][2]. Company Overview - Photronics is a leading manufacturer of photomasks for integrated circuits and flat panel displays, operating 11 manufacturing facilities across Asia, Europe, and North America [6].