PHOTRONICS INC

Previous wording

Management’s discussion and analysis (“MD&A”) of the Company’s financial condition and results of operations should be read in conjunction with its condensed consolidated financial statements and related notes. Various sections of this MD&A contain forward-looking statements, all of which are presented based on current expectations, which may be adversely affected by uncertainties and risk factors (presented throughout this filing and in the Company’s Form 10-K for the fiscal year ended October 31, 2023), that may cause actual results to materially differ from these expectations. See “Forward-Looking Statements”.

Current wording

Management’s discussion and analysis (“MD&A”) of the Company’s financial condition and results of operations should be read in conjunction with its condensed consolidated financial statements and related notes. Various sections of this MD&A contain forward-looking statements, all of which are presented based on current expectations, which may be adversely affected by uncertainties and risk factors (presented throughout this filing and in the Company’s Form 10-K for fiscal year 2024), that may cause actual results to materially differ from these expectations. See “Forward-Looking Statements”.

Previous 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 remains favorable for our products, backlogs for most high demand products have normalized to more manageable levels of less than a month.

Current 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 in the past 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.

Previous wording

The following table presents selected operating information expressed as a percentage of revenue. The columns may not foot due to rounding.

Current wording

The following tables present selected operating information expressed as a percentage of revenue. The columns may not foot due to rounding.

Previous wording

Note: All tabular comparisons included in the following discussion, unless otherwise indicated, are for the three months ended July 28, 2024 (Q3 FY24), April 28, 2024 (Q2 FY24), and July 30, 2023 (Q3 FY23) and for the nine months ended July 28, 2024 (YTD FY24) and July 30, 2023 (YTD FY23).

Current wording

Note: All the following tabular comparisons, unless otherwise indicated, are for the three months ended February 2, 2025 (Q1 FY25), October 31, 2024 (Q4 FY24) and January 28, 2024 (Q1 FY24). The tables in this item may not foot due to rounding.

Previous wording

The following tables present changes in disaggregated revenue in Q3 FY24 from revenue in prior reporting periods. The columns may not foot due to rounding.

Current wording

The following tables present changes in revenue disaggregated by product type and geographic origin, in Q1 FY25 from revenue in prior reporting periods.

Previous wording

Quarterly and YTD Changes in Revenue by Product Type

Current wording

Quarterly Changes in Revenue by Product Type ($ in millions)

Previous wording

High-end photomasks typically have higher average selling prices (ASPs) than mainstream products.

Current wording

High-end photomasks typically have higher ASPs than mainstream products.

Previous wording

Quarterly and YTD Changes in Revenue by Geographic Origin

Current wording

Quarterly Changes in Revenue by Geographic Origin ($ in millions)

Previous wording

Research and development expenses primarily consist of development and qualification efforts related to process technologies for high-end IC and FPD applications, were $3.6 million in Q3 FY24, $4.3 million in Q2 FY24, and $3.5 million in Q3 FY23. Thedecrease of $0.7 million from Q2 FY24 to Q3 FY24 was mainly due to the reduced research and development activities in the U.S.

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, decreased $1.0 million to $4.3 million in Q1 FY25 from Q4 FY24; the decrease was primarily caused by reduced qualification activities in Asia. Research and development expenses in Q1 FY25 increased by $0.8 million from Q1 FY24 as a result of increased development activities in the U.S.

Previous wording

Non-operating income (expense) increased $28.7 million to $26.9 million in YTD FY24, compared with $(1.8) million in YTD FY23, primarily due to foreign currency transactions impact, net, driven by favorable movements of the U.S. dollar against the South Korean won and the New Taiwan Dollar.

Current wording

Other Income (expense) increased in Q1 FY25 from Q4 FY24 by $26.0 million and from Q1 FY24 by $28.7 million, primarily due to foreign currency impacts. The foreign currency impacts were primarily driven by favorable movements of the New Taiwan dollar and the South Korean won, against the U.S. dollar.

Previous wording

The effective income tax rate is sensitive to the jurisdictional mix of earnings, due in part to the non-recognition of tax benefits on losses in jurisdictions with valuation allowances where the tax benefits of the losses are not available.

Current wording

The effective income tax rate is sensitive to the jurisdictional mix of earnings, due in part to the non-recognition of tax benefits on losses in jurisdictions with valuation allowances.

Previous wording

The effective income tax rate decrease in Q3 FY24, compared with Q3 FY23, is primarily due to changes in the jurisdictional mix of earnings.

Current wording

The effective income tax rate decrease in Q1 FY25, compared with Q1 FY24, is primarily due to changes in the jurisdictional mix of earnings and a decrease in foreign taxes in Q1 FY25.

Previous wording

Cash and cash equivalents were $537.3 million and $499.3 million as of July 28, 2024, and October 31, 2023, respectively. As of July 28, 2024, total cash and cash equivalents included $502.0 million held by foreign subsidiaries. Our primary sources of liquidity are our cash on hand and cash we generate from operations. In addition, we currently have $69.0 million in short-term investments and approximately $27.6 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.

Current wording

Cash and cash equivalents were $642.2 million and $598.5 million as of February 2, 2025, and October 31, 2024, respectively. During Q1 2025 all our short-term investments matured. As of February 2, 2025, total cash and cash equivalents included $550.2 million held by foreign subsidiaries, including an aggregate of $366.8 million held by our joint ventures in Taiwan and China. In addition, we currently have CNY 200 million (approximately $27.7 million) of borrowing capacity in China to support local operations. See Note 7– Debtto the consolidated financial statements for additional information on the Company’s outstanding debt and currently available financing. The Company’s primary sources of liquidity are the Company’s cash on hand and cash we generate from operations.

Previous wording

We continually evaluate alternatives for efficiently funding our capital expenditures and ongoing operations. These reviews may result in our engagement in a variety of investing and financing transactions, in the transfer of cash among subsidiaries, and/or the repatriation of cash to the U.S. The transfer of funds among subsidiaries could be subject to foreign withholding taxes; in certain jurisdictions, repatriation of these funds to the U.S. may subject them to U.S. state income taxes and/or local country withholding taxes. We believe that our liquidity, including available financing, is sufficient to meet our requirements through the next twelve months and thereafter for the foreseeable future. Through the utilization of our existing liquidity, cash we generate from operations, short-term investments, and (potentially) our borrowing capacity under our financing arrangement, we plan to continue to invest in our business, with our investments targeted to align with our customers’ technology road maps. We may also elect to use our cash to reduce our debt through early repayments. In addition, we stand ready to invest in mergers, acquisitions, or strategic partnerships, should a suitable opportunity arise.

Current wording

We continually evaluate alternatives for efficiently funding the Company’s capital expenditures and ongoing operations. These reviews may result in the Company’s engagement in a variety of investing and financing transactions, in the transfer of cash among subsidiaries, and/or the repatriation of cash to the U.S. The transfer of funds among subsidiaries could be subject to foreign withholding taxes; in certain jurisdictions, repatriation of these funds to the U.S. may subject them to U.S. state income taxes and/or local country withholding taxes. We believe that the Company’s liquidity, including available financing, is sufficient to meet the Company’s requirements through the next twelve months and thereafter for the foreseeable future. Through the utilization of the Company’s existing liquidity, cash we generate from operations and short-term investments, we plan to continue to invest in the Company’s business, with the Company’s investments targeted to align with the Company’s customers’ technology road maps. In addition, we stand ready to invest in mergers, acquisitions, or strategic partnerships, should a suitable opportunity arise.

Previous wording

We estimate capital expenditures for full year FY24 will be $130 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 July 28, 2024, we had outstanding capital commitments of approximately $129.7 million and recognized liabilities related to capital equipment purchases of approximately $10.2 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 $109.0 million of our total $139.9 million committed and recognized obligations for capital expenditures over the next twelve months.

Current wording

We estimate capital expenditures for the Company’s fiscal year 2025 will be approximately $200 million mainly in Asia and the U.S.; these investments will be targeted towards high-end and mainstream capacity that will increase the Company’s operating capability and efficiency and enable us to support the Company’s customers’ near-term demands. As of February 2, 2025, we had outstanding capital commitments of approximately $170.3 million and accrued 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 $175.4 million of the Company’s total $184.2 million committed and recognized obligations for capital expenditures over the next twelve months.

Previous wording

On August 28, 2024, the board of directors authorized an increase to the Company’s existing share repurchase program from the remaining $31.7 million up to $100 million. As of the date of this report, there were no additional shares repurchased under this program.

Current wording

On August 28, 2024, the Board of Directors authorized an increase to the Company’s existing share repurchase program from the remaining $31.7 million to $100 million. During Q1 FY25, the Company repurchased 195,079 shares for $4.6 million. As of February 2, 2025, there was $95.4 million remaining under the August 28, 2024 authorization. Depending on market conditions, we may utilize some or the entire remaining approved amount to reacquire additional shares.

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 July 28, 2024, Photronics and DNP each had net investments in this joint venture of approximately $134.3 million.

Current wording

As discussed in Note 6– PDMCX Joint Ventureof the Company’s consolidated financial statements, DNP, the noncontrolling interest in the Company’s China-based joint venture has, under certain circumstances, the right to put its interest in the joint venture to Photronics, or to purchase the Company’s 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 February 2, 2025, Photronics and DNP each had net investments in this joint venture of approximately $141.8 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 decreased $2.5 million in YTD FY24, compared with YTD 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 effects of changes in operating assets and liabilities. Net cash provided by operating activities increased by $37.0 million in the first quarter of FY25, compared with the same period of FY24, primarily due to increased net cash-favorable changes in working capital, predominantly in Asia.

Previous wording

Investing Activities: Net cash flows used in investing activities increased $77.9 million in YTD FY24, compared to YTD FY23, primarily driven by an increase of purchases of short-term investments of $90.7 million and purchases of property, plant, and equipment of $8.9 million, and partially offset by proceeds from maturities of short-term investments of $22.2 million.

Current wording

Investing Activities: Net cash flows provided by investing activities increased by $49.0 million in the first quarter of FY25, compared to the cash flows used in investing activities in the same period of FY24, primarily driven by an additional maturity of short-term investments of $39.0 million, partially offset by a decrease of purchases of property, plant and equipment of $8.1 million.

Previous wording

Non-GAAP Net Income attributable to Photronics, Inc. shareholders and non-GAAP earnings per share are “non-GAAP financial measures” as such term is defined by Regulation G of 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 a measure of consolidated operating results under U.S. GAAP and should not be considered as an alternative to Net income (loss), Net income (loss) per share, or any other measure of consolidated results under U.S. 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 statement of income and must be considered in performing a comprehensive assessment of overall financial performance.

Current wording

Non-GAAP Net Income attributable to Photronics, Inc. shareholders and non-GAAP diluted earnings per share are “non-GAAP financial measures” as such term is defined by Regulation G of 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 U.S. GAAP to our non-GAAP financial information. We believe these non-GAAP financial measures that exclude certain items are useful for analysts and investors to evaluate the Company’s on-going performance because they enable a more meaningful comparison of historical results of the Company’s core business. These non-GAAP metrics are not a measure of consolidated operating results under U.S. GAAP and should not be considered as an alternative to Net income (loss), Net income (loss) per share, or any other measure of consolidated results under U.S. GAAP. The items excluded from these non-GAAP metrics but included in the calculation of their closest U.S. GAAP equivalent, are significant components of the condensed consolidated statement of income and must be considered in performing a comprehensive assessment of overall financial performance.

Previous wording

The following table reconciles GAAP to Non-GAAP Income at the balance sheet dates. The columns may not foot due to rounding.

Current wording

The following table reconciles U.S. GAAP to Non-GAAP Income for the indicated periods. The columns may not foot due to rounding.

Previous wording

Our current business outlook and guidance was provided in the Photronics Q3 FY24 earnings release, earnings presentation, and financial results conference call, but is not incorporated herein. These can be accessed in the investor section of our website -www.photronics.com. Information included on our website is not incorporated into this Form 10-Q.

Current wording

Our current business outlook and guidance was provided in the Photronics Q1 FY25 earnings release, earnings presentation, and financial results conference call, but is not incorporated herein. These can be accessed in the investor section of our website -www.photronics.com. Information included on our website is not incorporated in this Form 10-Q.

Previous wording

Our future results of operations and the other forward-looking statements contained in this filing and in the Photronics Q3 FY24 earnings release, and the related financial results conference call and earnings presentation involve a number of risks and uncertainties, some of which were discussed in Part I, Item 1A of our Form 10-K for the fiscal year ended October 31, 2023. A number of other unforeseeable factors could cause actual results to differ materially from our expectations.

Current wording

Our future results of operations and the other forward-looking statements contained in this filing and in the Photronics Q1 FY25 earnings release, and the related financial results conference call and earnings presentation involve a number of risks and uncertainties, some of which were discussed in Part I, Item 1A of our 2024 Form 10-K. These factors and a number of other unforeseeable factors could cause actual results to differ materially from our expectations.

Previous wording

Please refer to Part II, Item 7 of our Form 10-K for the fiscal year ended October 31, 2023 for discussion of our critical accounting estimates. There have been no changes to our critical accounting estimates since the filing of our Form 10-K for the fiscal year ended October 31, 2023.

Current wording

Please refer to Part II, Item 7 of our 2024 Form 10-K for discussion of our critical accounting estimates. There have been no changes to our critical accounting estimates since the filing of our Form 10-K for the year ended October 31, 2024.