Photronics, Inc. Q3 FY2025 earnings call

Key Points

• Solid quarter with sales of $210 million, flat year-over-year and sequentially. Non-GAAP diluted EPS was $0.51, well ahead of guidance.
• Leveraged photomask legacy to drive profitability and cash flow; operating cash flow 25% of revenue, strong balance sheet with $576M cash and short-term investments.
• Returned cash to shareholders via $21M stock repurchase in the quarter, total year-to-date $97M.
• Evaluating opportunities, with U.S. expansion plans (expanding Texas cleaning facility, elevating Idaho leading edge capabilities).
• Assessing capability extensions in Asia to 6-8nm production, expected to contribute revenue in latter half of 2027/2028.
• Hired new Head of Global Sales to drive coordinated global sales strategy. Focused on improving efficiencies across organization through strategic and targeted improvements.
• IC segment faced headwinds from geopolitical trade restrictions and tariff negotiations. FPD segment benefited from strong demand in Korea and China due to smartphone/tablet/laptop design releases.

In the integrated circuits end market, revenue was $148 million, down 5% year-over-year. High-end IC revenue was 36% of total IC revenue and up 8% year-over-year. The flat panel display market had revenue of $63 million, up 14% year-over-year. Geographically, Taiwan facilities generated 33% of total revenue, China 24%, Korea 21%, and U.S. and Europe together 22%.

Guidance

• Fourth quarter revenue expected in range of $201 million to $209 million.
• Fiscal Q4 operating margin expected between 20% and 22%.
• Non-GAAP earnings per share for Q4 expected in range of $0.42 to $0.48 per diluted share.

Risks

• Geopolitical trade restrictions in Asia muting IC demand and influencing design release from Asian customers.
• Unresolved tariff negotiations temporarily affecting business.
• Material purchases from Japan incurring tariffs if brought to the U.S., though impacts not material to date.

Q: Do you see the mix in the fourth quarter being very similar to the third quarter?

A: Yes, we see the mix in the fourth quarter to be similar to that of the third quarter.

Q: Do trade restrictions impact you directly?

A: Trade restrictions don't impact us directly, but impact our customers; to a lesser extent, may impact material and equipment purchases, but not material to date.

Q: When looking at the multi-beam mask writer for higher end, is it for Samsung, TSMC, or other customers?

A: It's for higher end nodes for customers similar to mentioned, including Samsung, for higher end customers.

Q: For the 6-nanometer to 8-nanometer product expansion, what end market products are they for?

A: Mostly high-end processors, edge AI devices, EVs, AI embedded in cars, mobile communications, and some memory (DRAM).

Q: When will CapEx normalize back to historical levels?

A: About a 3-year higher-than-normal CapEx, part of it end-of-life tool replacement and strategic investments in Asia for advanced nodes, likely normalized after 3 years.

Q: Sequential change in gross margins between Q2 and Q3?

A: Combination of factors, primarily mix in Asia causing it.

Q: Update on multi-beam mask writer customer adaptation?

A: Qualifications well underway, 3-5 customers already qualified, ramping utilization, adoption positive.

Q: Flexibility to allocate cash from JVs?

A: Can use cash at joint venture regions, can dividend out to corporate office, control when and if dividends are paid.

Q: U.S. government involvement with Intel affect business?

A: Helping Intel strengthens Intel, which is a customer, and our strong U.S. product portfolio benefits from this as it can lead to more outsourcing.