PHOTRONICS INC

Previous wording

We are typically required to fulfill customer orders within a short period of time, sometimes within twenty-four hours. This results in a minimal level of backlog, typically two to three weeks of backlog for FPD photomasks and one to two weeks for IC photomasks. However, the demand for some IC photomasks has expanded beyond the industry’s capacity to supply them within the traditional time period; thus, for some products, the backlog can expand to as long as two to three months.

Current wording

We are typically required to fulfill customer orders within a short period of time, sometimes within twenty-four hours. This has historically resulted in a minimal level of backlog, typically two to three weeks of backlog for FPD photomasks and one to two weeks for IC photomasks. However, due to market dynamics over the last two years, the demand for some IC photomasks had expanded beyond the industry’s capacity to supply them within the traditional time period; thus, for some products, the backlog had expanded to as long as two to three months. More recently however, while supply and demand balance generally still remains favorable for our products, backlogs for most high demand products have normalized to more manageable levels of less than a month.

Previous wording

Note: All tabular comparisons included in the following discussion, unless otherwise indicated, are for the three months ended January 28, 2024 (Q1 FY24), October 31, 2023 (Q4 FY23), and January 29, 2023 (Q1 FY23). The columns may not foot due to rounding.

Current wording

Note: All tabular comparisons included in the following discussion, unless otherwise indicated, are for the three months ended April 28, 2024 (Q2 FY24), January 28, 2024 (Q1 FY24), and April 30, 2023 (Q2 FY23) and for the six months ended April 28, 2024 (YTD FY24) and April 30, 2023 (YTD FY23).

Previous wording

IC photomask revenue decreased by 4.2% compared with Q4 FY23. The decrease from Q4 FY 23 was primarily the result of reduced mainstream demand in Asia. IC photomask revenue slightly increased compared to Q1 FY23 with an increase in high end demand offsetting the decrease in mainstream.

Current wording

IC photomask revenue increased by 2.1% compared with Q1 FY24. The increase from Q1 FY 24 was primarily the result of increased mainstream demand in Asia offsetting decreased high end demand primarily in the U.S. IC photomask revenue decreased by 3.7% compared to Q2 FY23 as increased high-end demand were more than offset by decreased mainstream demand.

Previous wording

FPD revenue decreased 6.7% compared with Q4 FY23. The decrease from Q4 FY23 was due to premium smartphone seasonality. FPD revenue increased 7.8% from Q1 FY23 due to increased high end demand for AMOLED. We believe that strong demand for AMOLED photomasks will continue, as expected technology advances drives increasing overall demand for higher-value masks.

Current wording

FPD revenue decreased 4.6% compared with Q1 FY24. The decrease from Q1 FY24 was due to premium smartphone seasonality. FPD revenue decreased 9.9% from Q2 FY23 due to decreases in both high-end and mainstream products due to softer demand. We continue to believe that strong demand for AMOLED photomasks used in mobile devices will continue, as expected technology advances drives increasing overall demand for higher-value masks.

Previous wording

Gross margin decreased 70 basis points in Q1 FY24, from Q4 FY23. Material costs decreased 5.1% from the prior quarter, and, as a percentage of revenue, by 3 basis points. Labor cost decreased 2.7% from the prior quarter, but, as a percentage of revenue, increased by 27 basis points. Equipment and other overhead costs decreased 3.3% but increased 47 basis points as a percentage of revenue.

Current wording

Gross margin remained flat in Q2 FY24, from Q1 FY24. With respect to items within cost of goods sold, material costs decreased 1.3% from the prior quarter and, decreased as a percentage of revenue, by 40 basis points. Labor cost decreased 1.0% from the prior quarter and, decreased as a percentage of revenue, by 18 basis points. Equipment and other overhead costs increased 2.7% from the prior quarter, and, increased 65 basis points as a percentage of revenue.

Previous wording

Gross margin increased 60 basis points, in Q1 FY24, from Q1 FY23, primarily as a result of the increase in revenue from the prior year quarter and favorable product mix. Material costs increased 2.3% from the prior year quarter, but decreased as a percentage of revenue by 3 basis points. Labor and benefits costs increased 4.1% from the prior year quarter, and increased, as a percent of revenue, by 19 basis points as labor increased in both the U.S. and at several Asia-based facilities, reflecting labor market conditions. Equipment and other overhead costs remained flat but decreased 67 basis points as a percentage of revenue.

Current wording

Gross margin decreased 210 basis points, in Q2 FY24, from Q2 FY23, primarily as a result of the decrease in revenue from lower Premium charges. Material costs decreased 5.8% from the prior year quarter, and, decreased as a percentage of revenue by 11 basis points. Labor costs decreased 1.2% from the prior year quarter, but, increased, as a percent of revenue, by 49 basis points as labor increased in both the U.S. and at several Asia-based facilities, reflecting labor market conditions. Equipment and other overhead costs increased 0.5% from the prior quarter, and, increased 163 basis points as a percentage of revenue.

Previous wording

Selling, general, and administrative expenses were $18.3 million in Q1 FY24, compared with $16.7 million in Q4 FY23. The increase of $1.6 million was primarily the result of increased compensation and related expenses of $1.6 million. Selling, general, and administrative expenses increased $1.5 million in Q1 FY24, from $16.8 million in Q1 FY23, primarily as a result of increased compensation and related expenses of $1.4 million.

Current wording

Selling, general, and administrative expenses were $19.0 million in Q2 FY24, compared with $18.3 million in Q1 FY24. The increase of $0.7 million was primarily the result of increased compensation and related expenses of $0.1 million and increased professional fees of $0.2 million. Selling, general, and administrative expenses increased $1.1 million in Q2 FY24, from $17.9 million in Q2 FY23, primarily as a result of increased compensation and related expenses of $1.2 million.

Previous wording

Research and development expenses, which primarily consist of development and qualification efforts related to process technologies for high-end IC and FPD applications, were $3.4 million in Q1 FY24, $3.4 million in Q4 FY23, and $3.3 million in Q1 FY23.

Current wording

Research and development expenses, which primarily consist of development and qualification efforts related to process technologies for high-end IC and FPD applications, were $4.3 million in Q2 FY24, $3.4 million in Q1 FY24, and $3.5 million in Q2 FY23.

Previous wording

Non-operating income (expense) decreased $22.4 million to $(3.7) million in Q1 FY24, compared with $18.7 million in Q4 FY23, primarily due to foreign currency transactions impact, net, driven by unfavorable movements of New Taiwan Dollar and the South Korean won against the U.S. dollar. Non-operating income (expense) increased $10.7 million from Q1 FY23 compared with $(14.4) million, primarily due to foreign currency transaction impact, net, driven by favorable movements of the South Korean won and RMB against the U.S. dollar.

Current wording

Non-operating income (expense) increased $24.2 million to $20.5 million in Q2 FY24, compared with $(3.7) million in Q1 FY24, primarily due to foreign currency transactions impact, net, driven by favorable movements of the U.S. dollar againstthe New Taiwan Dollar and the South Korean won. Non-operating income (expense) increased $6.9 million compared with Q2 FY23, primarily due to foreign currency transaction impact, net, driven by favorable movements of the U.S. dollar against the New Taiwan Dollar.

Previous wording

Interest income and other income (expense), net, of $5.3 million in Q1 FY24 remained flat compared with $5.6 million in Q4 FY23. Interest income and other income (expense), net, increased $2.7 million compared to Q1 FY23 driven by an increase in cash and cash equivalents, and higher interest rates.

Current wording

Interest income and other income (expense), net, of $5.8 million in Q2 FY24 increased $0.5 million compared with $5.3 million in Q1 FY24. Interest income and other income (expense), net, increased $2.8 million compared to $3.0 million in Q2 FY23 driven by an increase in time deposits within cash and cash equivalents, and higher interest rates.

Previous wording

The effective income taxrate increase in Q1 FY24, compared with Q4 FY23, is primarily due to changes in the jurisdictional mix of earnings and an increase in foreign taxes in Q1 FY24.

Current wording

The effective income tax rate decrease in Q2 FY24, compared with Q1 FY24, is primarily due to changes in the jurisdictional mix of earnings anda decrease inforeign taxes in Q2 FY24.

Previous wording

The effective income tax rate decrease in Q1 FY24, compared with Q1 FY23, is primarily due to changes in the jurisdictional mix of earnings.

Current wording

The effective income tax rate decrease in YTD FY24 compared with YTD FY23, is primarily due to changes in the jurisdictional mix of earnings.

Previous wording

Net income attributable to noncontrolling interests was $12.9 million in Q1 FY24, compared with $18.5 million in Q4 FY23, and $15.0 million in Q1 FY23. The decrease from Q4 FY23 and Q1 FY23, to Q1 FY24 resulted from decreased net income at our Taiwan-based IC joint venture.

Current wording

Net income attributable to noncontrolling interests was $20.1 million in Q2 FY24, compared with $12.9 million in Q1 FY24, and $19.3 million in Q2 FY23. The increase from Q1 FY24 to Q2 FY24 resulted from increased net income at our Taiwan-based IC joint venture. Net income attributable to noncontrolling interest was $33.0 million in YTD FY24, compared with $34.3 million in YTD FY23 as a result of decreased net income at our Taiwan-based IC joint venture.

Previous wording

Cash and cash equivalents were $508.5 million and $499.3 million as of January 28, 2024, and October 31, 2023, respectively. As of the most recent balance sheet date, total cash and cash equivalents included $494.0 million held by foreign subsidiaries. Net Cash, a non-GAAP financial measure as defined and discussed in the Non-GAAP Financial Measures section below, was $485.0 million and $474.7 million as of January 28, 2024, and October 31, 2023, respectively. Our primary sources of liquidity are our cash on hand, cash we generate from operations, and borrowing capacity we have available from financial institutions. In China, we currently have approximately $25.0 million of borrowing capacity to support local operations. See Note 7 to the condensed consolidated financial statements for additional information on our outstanding debt and currently available financing.

Current wording

Cash and cash equivalents were $493.9 million and $499.3 million as of April 28, 2024, and October 31, 2023, respectively. As of April 28, 2024, total cash and cash equivalents included $469.4 million held by foreign subsidiaries. Net Cash, a non-GAAP financial measure as defined and discussed in the Non-GAAP Financial Measures section below, was $472.1 million and $474.7 million as of April 28, 2024, and October 31, 2023, respectively. Our primary sources of liquidity are our cash on hand and cash we generate from operations. In addition, we currently have approximately $25.0 million of borrowing capacity in China to support local operations. See Note 7 to the condensed consolidated financial statements for additional information on our outstanding debt and currently available financing.

Previous wording

We estimate capital expenditures for full year FY24 will be approximately $140 million; these investments will be targeted towards high-end and mainstream IC capacity and efficiency and enable us to support our customers’ near-term demands. As of January 28, 2024, we had outstanding capital commitments of approximately $142.2 million and recognized liabilities related to capital equipment purchases of approximately $13.9 million. Although payment timing could vary, primarily as a result of the timing of tool delivery, installation, and testing, we currently estimate that we will fund $99.1 million of our total $156.1 million committed and recognized obligations for capital expenditures over the next twelve months.

Current wording

We estimate capital expenditures for full year FY24 will be approximately $140.0 million; these investments will be targeted towards high-end and mainstream IC capacity and efficiency and enable us to support our customers’ near-term demands. As of April 28, 2024, we had outstanding capital commitments of approximately $133.3 million and recognized liabilities related to capital equipment purchases of approximately $18.9 million. Although payment timing could vary, primarily as a result of the timing of tool delivery, installation, and testing, we currently estimate that we will fund $98.0 million of our total $152.2 million committed and recognized obligations for capital expenditures over the next twelve months.

Previous wording

As discussed in Note 6 to the condensed consolidated financial statements, DNP, the noncontrolling interest in our China-based joint venture has, under certain circumstances, the right to put its interest in the joint venture to Photronics, or to purchase our interest in the joint venture. Under all such circumstances, the sale of DNP’s interest would be at its ownership percentage of the joint venture’s net book value, with closing to take place within three business days of obtaining required approvals and clearance. As of the date of issuance of this report, DNP had not indicated its intention to exercise this right. As of January 28, 2024, Photronics and DNP each had net investments in this joint venture of approximately $127.4 million.

Current wording

As discussed in Note 6 to the condensed consolidated financial statements DNP, the noncontrolling interest in our China-based joint venture has, under certain circumstances, the right to put its interest in the joint venture to Photronics, or to purchase our interest in the joint venture. Under all such circumstances, the sale of DNP’s interest would be at its ownership percentage of the joint venture’s net book value, with closing to take place within three business days of obtaining required approvals and clearance. As of the date of issuance of this report, DNP had not indicated its intention to exercise this right. As of April 28, 2024, Photronics and DNP each had net investments in this joint venture of approximately $130.1 million.

Previous wording

Operating Activities: Net cash provided by operating activities reflects net income adjusted for certain non-cash items, including depreciation and amortization, share-based compensation, and the impacts of cash from changes in operating assets and liabilities. Net cash provided by operating activities increased $13.8 million in Q1 FY24, compared with Q1 FY23.

Current wording

Operating Activities: Net cash provided by operating activities reflects net income adjusted for certain non-cash items, including depreciation and amortization, share-based compensation, and the impacts of cash from changes in operating assets and liabilities. Net cash provided by operating activities increased $8.3 million in YTD FY24, compared with YTD FY23.

Previous wording

Investing Activities: Net cash flows used in investing activities primarily consisted of purchases of property, plant, and equipment of $43.3 million, which increased $12.2 million in Q1 FY24, compared with Q1 FY23.

Current wording

Investing Activities: Net cash flows used in investing activities increased $52.4 million in YTD FY24, compared to YTD FY23, primarily driven by an increase of purchases of short-term investments of $56.2 million, purchases of property, plant, and equipment of $5.6 million, and partially offset by proceeds from maturities of short-term investments of $9.2 million.

Previous wording

Financing Activities: Net cash used in financing activities decreased by $6.8 million in Q1 FY24, compared with Q1 FY23, primarily due to decreased debt repayments of $8.0 million.

Current wording

Financing Activities: Net cash used in financing activities decreased by $10.5 million in YTD FY24, compared to YTD FY23, primarily due to decreased debt repayments of $11.9 million.

Previous wording

The increase in our cash balance from Q1 FY23 was favorably impacted by the effects of exchange rate changes in the amount of $13.0 million in Q1 FY24, which was less than the $27.5 million favorable impact of exchange rate changes had on our cash balance in Q1 FY23.

Current wording

The increase in our cash balance from YTD FY23 was unfavorably impacted by the effects of exchange rate changes in the amount of $3.8 million in YTD FY24, which was less than the $15.6 million favorable impact of exchange rate changes on our cash balance in YTD FY23.

Previous wording

Non-GAAP Non-operating (loss) income, Non-GAAP Income tax provision, Non-GAAP Noncontrolling interests, Non-GAAP Net Income attributable to Photronics, Inc. shareholders and non-GAAP earnings per share, Free Cash Flow, and Net Cash are "non-GAAP financial measures" as such term is defined by the Securities and Exchange Commission and may differ from similarly named non-GAAP financial measures used by other companies. The financial tables below reconcile Photronics, Inc. financial results under GAAP to non-GAAP financial information. We believe these non-GAAP financial measures that exclude certain items are useful for analysts and investors to evaluate our future on-going performance because they enable a more meaningful comparison of our projected performance with our historical results. These non-GAAP metrics are not intended to represent funds available for our discretionary use and are not intended to represent, or be used as a substitute for, net income attributable to Photronics, Inc. shareholders, diluted earnings per share, cash and cash equivalents, or cash flows from operations, as measured under GAAP. The items excluded from these non-GAAP metrics but included in the calculation of their closest GAAP equivalent, are significant components of the condensed consolidated statements of income, condensed consolidated balance sheets and statement of cash flows and must be considered in performing a comprehensive assessment of overall financial performance.

Current wording

Non-GAAP Net Income attributable to Photronics, Inc. shareholders, non-GAAP earnings per share and Net Cash are "non-GAAP financial measures" as such term is defined by the SEC and may differ from similarly named non-GAAP financial measures used by other companies. The financial tables below reconcile Photronics, Inc. financial results under GAAP to non-GAAP financial information. We believe these non-GAAP financial measures that exclude certain items are useful for analysts and investors to evaluate our future on-going performance because they enable a more meaningful comparison of our projected performance with our historical results. These non-GAAP metrics are not intended to represent funds available for our discretionary use and are not intended to represent, or be used as a substitute for, net income attributable to Photronics, Inc. shareholders, diluted earnings per share, cash and cash equivalents, or cash flows from operations, as measured under GAAP. The items excluded from these non-GAAP metrics but included in the calculation of their closest GAAP equivalent, are significant components of the condensed consolidated statements of income, condensed consolidated balance sheets and statement of cash flows and must be considered in performing a comprehensive assessment of overall financial performance.

Previous wording

The following table reconciles Cashand cash equivalents to Net Cash at the balance sheet dates. The increase in Net Cash was primarily driven by proceeds from maturities of available-for-sale debt securities, decreased debt repayments and increase in Net cash provided by operating activities, as discussed above. The columns may not foot due to rounding. Prior year amounts in the non-GAAP disclosure below have been recast to eliminate government incentives to conform to current year presentation.

Current wording

The following table reconciles Cash and cash equivalents to Net Cash at the balance sheet dates. The decrease in Net Cash as of April 28, 2024 from October 31, 2023 was primarily driven by purchases of property, plant and equipment, and purchases of short-term investments which was offset by proceeds from maturities of short-term investments and lease payments related to finance type leases. The increase in Net Cash as of October 31, 2023 from April 30,2023 was primarily driven by proceeds from maturities of available-for-sale debt securities, decreased debt repayments and increase in Net cash provided by operating activities, as discussed above. The columns may not foot due to rounding.