PHOTRONICS INC Q2 FY2025 earnings call

Management Statement and Operational Highlights:

• Second quarter sales were $211 million, in the middle of guidance range.
• Spent $72 million to repurchase 3.6 million shares.
• IC market is migrating to higher-end nodes, generating higher ASPs per mask set.
• Global footprint includes 11 cleanroom production facilities (6 in Asia, 3 in US, 2 in Europe).
• Frank Lee retiring as CEO after 3 years, will continue managing Asia operations; George Makrokostas appointed new CEO.
• US capacity expansion plan targets node migration opportunity, and supports reshoring of semiconductor production to US.
• Tariff dynamics during the quarter increased macroeconomic uncertainty, but diverse geographic footprint helps mitigate potential tariff costs.

Segment Performance:

• IC revenue was $156 million, down 3% year over year, representing 38% of total revenue. High-end IC revenue increased 2% year over year. Mainstream IC revenue declined 6% year over year.
• FPD revenue was $55 million, down 2% year over year.
• Gross margin was 37%, operating margin was 26% in Q2, which was above guidance range. Non-GAAP diluted EPS was $0.40, GAAP EPS was $0.15 per share.

Guidance:

• Third-quarter revenue expected to be in the range of $200 to $208 million.
• Non-GAAP earnings per share for third quarter estimated to be in the range of $0.35 to $0.41 per diluted share.
• Operating margin expected to be between 20% and 22%.

Risks:

• US tariff dynamics increased global macroeconomic uncertainty.
• Demand for products is inherently uneven and difficult to predict, with limited visibility and typical backlog of one to three weeks.
• ASPs for high-end assets are high, meaning a relatively low number of high-end orders can significantly impact quarterly revenue and earnings.
• Business influenced by IC and display design activity and wafer/panel capacity dynamics.

Q: More color on the mainstream business.

A: Frank and Chris discuss that the mainstream market is weak due to low wafer fab utilization in age fab customers, with a somewhat unfavorable supply-demand balance due to muted demand and some capacity increases from end-of-life tool turnovers, but it's not a long-term issue.

Q: George's first focus.

A: George mentions focusing on cost-consciousness, driving market share, working with Frank to do an orderly transition, and addressing back of house administrative matters and governance initially.

Q: US capacity expansion vs regional utilization.

A: George states they will evaluate opportunities and deploy capital as needed, expanding US capacity while monitoring and investing appropriately.

Q: Prioritization of share buyback.

A: Chris says there's $23 million remaining under the existing repurchase authorization and they will be opportunistic with that, comparing against other investment opportunities for long-term growth.