PHOTRONICS INC Q4 FY2024 earnings call

• Delivered a strong fourth quarter with sales of $223 million, above the high end of guidance, driven by high-end IC and G10.5+ FPD.
• Full-year sales were $867 million, the second-highest in the company's history.
• IC market demand turned positive for high-end designs, with VisionEdge AI chips driving multi-layered mask demand.
• FPD mask demand was fueled by new designs and larger G10.5+ panels requiring larger photomasks.
• Q4 net income was $34 million, and full-year recurring income was $131 million.
• Cash and short-term investments increased by $128 million to $641 million over the past twelve months.
• 2024 CapEx was $131 million, with 2025 CapEx planned at $200 million, focusing on expanding US IC capacity.
• China is a profitable growth engine due to sustainable competitive advantages and long-term purchase agreements.

In the fourth quarter, revenue was $223 million. IC revenue increased 5% quarter-over-quarter, driven by a 21% surge in high-end sales, partially offset by a slight reduction in mainstream demand. FPD revenue improved sequentially, up 7% on strong mainstream growth. High-end FPD was essentially flat, but strong growth in G10.5+ offset soft demand for advanced mobile displays. IC sales were bolstered by high-end ICs, and FPD sales by G10.5+ FPD.

• First-quarter revenue is expected to be in the range of $208 million to $216 million.
• Non-GAAP earnings per share for the first quarter is estimated to be between $0.43 and $0.49 per diluted share.
• Operating margin for the first quarter is expected to be between 23% and 25%.
• Cautiously optimistic about 2025 revenue growth in line with photomask industry dynamics.

• Forward-looking statements are subject to risks and uncertainties that are difficult to predict.
• Demand for the product is uneven and difficult to predict, with limited visibility and a typical backlog of one to three weeks.
• High ASPs for high-end masks mean a few orders can significantly impact quarterly revenue and earnings.

Q: On the operating expenses, what drove the increase and what portion was one-time versus recurring?

A: Eric Rivera said operating expenses were primarily driven by increased SG&A and R&D costs, with approximately half of the increase being non-recurring. Chris Progler added R&D had a robust pipeline of new projects, including a 7nm node optical project and EUV high-NA program development.

Q: On the $200 million CapEx for 2025, is this primarily targeted at new capacity, and could you provide some details on whether this includes any brick-and-mortar expansions?

A: Eric Rivera stated most of the $200 million CapEx is earmarked for new capacity, focusing on the US to support regionalization, with expansions within existing sites rather than entirely new facilities.

Q: How do you view the photomask industry’s growth in 2025 and beyond?

A: Frank Lee was optimistic, citing regionalization, AI, and advanced semiconductor designs as driving new projects and increasing demand for photomasks, including from AI ecosystems fueling demand for edge chips and ASICs.