NASDAQ:PLAB Photronics Q4 2023 Earnings Report $18.80 -0.29 (-1.52%) As of 01:58 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Photronics EPS ResultsActual EPS$0.60Consensus EPS $0.53Beat/MissBeat by +$0.07One Year Ago EPS$0.60Photronics Revenue ResultsActual Revenue$227.50 millionExpected Revenue$224.00 millionBeat/MissBeat by +$3.50 millionYoY Revenue Growth+8.20%Photronics Announcement DetailsQuarterQ4 2023Date12/13/2023TimeBefore Market OpensConference Call DateWednesday, December 13, 2023Conference Call Time8:30AM ETUpcoming EarningsPhotronics' Q2 2025 earnings is scheduled for Tuesday, May 20, 2025Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Photronics Q4 2023 Earnings Call TranscriptProvided by QuartrDecember 13, 2023 ShareLink copied to clipboard.There are 6 speakers on the call. Operator00:00:00Good day, and welcome to the Photronics Q4 FY 'twenty three Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference is being recorded, Wednesday, December 13, 2023. I would now like to turn the conference over to Michelle Burr, Chief Administrative Officer. Speaker 100:00:23Thank you, Michelle. Good morning, everyone. Welcome to our review of Photronics' fiscal 2023 4th quarter results. Joining me this morning are Frank Lee, our Chief Executive Officer Chris Progler, our Chief Technology Officer John Jordan, our Chief Financial Officer and Eric Rivera, Our Chief Accounting Officer and Corporate Controller. The press release that we issued earlier this morning, together with the presentation material that accompanies our remarks, are available on the Investor Relations section of our webpage. Speaker 100:00:53Comments made by any participant on today's call may include forward looking statements that includes such words as anticipate, believe, estimate, expect, forecast and in our view. These forward looking statements are based upon a number of risks, uncertainties and other factors that are difficult to predict. Actual results may differ materially from those expressed or implied, and we assume no obligation to update Any forward looking information. During the course of our discussion, we will refer to certain non GAAP financial metrics. These numbers are useful for analysts, investors and management to evaluate ongoing performance. Speaker 100:01:38A reconciliation of these metrics to GAAP financial results is provided in our presentation materials. At this time, I will turn the call over to Frank. Speaker 200:01:49Thank you, Rachel, and good morning, everyone. The Photronics team had another outstanding year in 2023 and delivered record revenue for the 6th Over the last 6 year period, we have achieved a compound annual revenue growth rate of over 12%. For full 2023, revenue grew 8% year over year, While the photomask market overall was fracked and the semiconductor industry overall It is expected to contract by up to 12%. The Votronics year over year revenue growth Once again, offers testimony to the tendency of design driven photomask demand To be less cyclical than the industry in general. Most recent indications from Industry leaders and from our customers is that the current semiconductor cycle contraction Thus, the effect cycles and current observation can be considered indicators Photomass demand should resume a more robust growth phase during for China's second to third Physical quarters. Speaker 200:03:34Margins for the quarter year were also outstanding. We achieved operational margin of 28.5 percent for the 4th quarter and 28.4% for the full year 2023, The best year in the history of the company. The combination of the following has continued to support The sustainability of this margin level, the high operation leverage, Stable pricing from our long term purchase agreement, our focus on delivering the best quality mask And our driving for being the low cost producer. As a result of the solid operation results And the contribution from below the line items we earned in Q4, $0.72 per share on a GAAP basis and $0.60 per share on a non GAAP basis. Strong cash flow was generated in 2023, contributing to a stronger balance sheet And increasing our cash position with reducing debt, we continue to invest in growth, Position us to continue the past several years' strong performance. Speaker 200:05:07To summarize, We achieved another record year in 2023, growing revenue year frame market. Our team performed well and our customers continue to trust us as their photo mask partners. We are investing in high return projects and are positioned to continue to outgrow the market and create value for our shareholders. I'm proud of our accomplishment and excited about our future. And I would especially like to express my gratitude For the more than 1800 employees that have worked hard to achieve these results, At this time, I will turn the call over to John to discuss the results further. Speaker 300:06:06Thank you, Frank. Good morning, everyone. Our 4th quarter finalized another great year for Photronics. In my comments, I'll first discuss the 4th quarter results, then the results for the full fiscal year. 4th quarter revenue of $227,500,000 increased 8% over Q4 of last year and 1% Sequentially. Speaker 300:06:33Photronics' 4th quarter always ends on October 31, which may add Or subtract days to the standard 91 day 4.45 fiscal calendar. This year, Q4 was boosted by an extra 2 days in the quarter. It was our 2nd highest quarterly revenue ever, only 1% Our revenue into China in Q4 declined from 53% of total revenue in Q3 to 44%, Replaced by revenue with other customers. It might be worthwhile to add some further color regarding the China business. Although we derive a good portion of revenue from China as do others in the semiconductor and display industry, What makes China business somewhat unique is that there is a significant number of new designs and fabs in China Driving Photomass Demand. Speaker 300:07:40And since there is a much smaller captive market in China, the preponderance of the Photomass production is being provided by merchant manufacturers like Foottronics. The business by major category, I see revenue of $164,500,000 in the 4th quarter was up 1% sequentially and 5% year over year. Our high end revenue defined as IC masks using 28 nanometer and smaller technology drove the increase With 27% sequential growth, which more than offset the reduction in mainstream revenue. High end revenue was strong in foundrylogic in both U. S. Speaker 300:08:25And Asia. The 9% decrease in mainstream revenue resulted in large part From lower delivery premiums due to somewhat moderated demand and more normalized lead times for those products. For the FPD product category, 4th quarter FPD revenue was a record $63,000,000 up 3% sequentially And 17% year over year, a 7% increase in high end revenue Defined as LTPS AMOLED and G10.5 large area masks Drove the increase from strong demand for AMOLED display masks used in mobile displays where we have technology leadership. The additional FPD production devoted to high end mass production then resulted in 13% lower mainstream revenue. Gross margin was solid at 37.3%, although slightly lower due substantially to the decreased premiums decreased somewhat and declined as a percentage of revenue to less than 9%, helping us achieve an operating margin of 28.5% in the quarter. Speaker 300:09:47GAAP net income in the quarter was $44,600,000 or $0.72 per diluted share. Non GAAP net income, which eliminates foreign currency effects primarily unrealized, was $37,200,000 or $0.60 a share. For reference, our reconciliation of GAAP to non GAAP results is included in the press release and supplemental slides. For the year, total revenue of $892,100,000 was 8% higher Then the $824,500,000 reported in fiscal year 2022, the 6th Straight year of record revenues, as Frank mentioned, a compound annual growth rate of 12% over the last 6 years. Revenue in fiscal year 2023 was nearly double the revenue of fiscal year 2017 When we repositioned the business and initiated the targeted investments to address where we anticipated growth to be in the photo mask space. Speaker 300:10:57IC revenue for the year was a record and grew 9.8% as strong demand for mainstream masks for a good part of the year I've set a slight decrease in high end revenue primarily in the U. S. Near term, our investment will be primarily in IC capacity to continue outgrowing the market and take advantage of our market strength and close customer relationships. FPD revenue is also a record for the year, up 4% With high end growth consistently driven by AMOLED demand, we anticipate this trend to continue into fiscal 2024. Gross margins for the year were 37.7%, 200 basis points over the strong gross margin in fiscal 2022, and we anticipate the gross margin will remain in the current Thanks to the stable pricing, cost controls and operating leverage. Speaker 300:12:02Maintenance of this level of gross margin In the face of erosion of delivery premiums during the latter half of the year indicates a pricing and operating environment that supports the sustainability of the margins. Operating expense for the year was nearly unchanged from the prior year, up less than $800,000 and declined as a percentage of revenue to 9.3% from 10% in the prior year. Operating margin was 28.4% compared to 25.7% In fiscal 2022, an operating income in fiscal 2023 was $253,000,000 During our 6 years of 12% revenue growth, operating income has grown at a compound annual growth rate of 41% and operating margin quadrupled. GAAP EPS for the year was $2.03 and adjusted for the effects of foreign exchange variations, non GAAP EPS was $2.04 GAAP EPS similarly has grown at a CAGR compound annual growth rate of 48% During the 6 years, revenue has increased 12%. Operating cash flow of $106,600,000 for the quarter and $302,200,000 for the year were also records for the company, resulting from higher net income and effective management of working capital. Speaker 300:13:45CapEx for the quarter was $21,100,000 And $131,200,000 for the year, which resulted in free cash flow for the year of $170,900,000 For 2024, we expect to invest $140,000,000 in CapEx, primarily in both high end and mainstream IC to address current and anticipated demand growth. We'll also be taking delivery of a new multi beam lithography tool in the U. S. For development, then Page into high end production enhancements, then leading edge development during our fiscal year 2025. We ended the year with a cash balance of $499,300,000 and short term investments of 12,900,000 Some investments of cash that were previously classified as short term investments have been reinvested in shorter term instruments That are now classified as cash equivalents and included in the cash and cash equivalents balance at October 31, 2023. Speaker 300:14:57The aggregate of cash and cash equivalents and short term investments Increased from $358,500,000 at year end 2022 to $512,200,000 at October 31, 2023. Our only remaining debt Consists of low cost equipment leases of $24,600,000 Our net cash position of 475,000,000 provides ample liquidity to fund investments in organic growth. It also has continued to provide resilience against uncertainties inherent In an industry downturn, we have $32,000,000 remaining of our previous $100,000,000 authorization to repurchase our common stock and we will continue evaluating when to resume the share repurchase initiative. Before I provide guidance, I'll remind you that our visibility is always limited as our backlog is typically only 1 to 3 weeks And demand for some of our products is inherently uneven and difficult to predict. Additionally, the ASP's high end mask And as this segment of the business grows, a relatively low number of high end orders Can have a significant impact on our quarterly revenue and earnings. Speaker 300:16:24Given those caveats, We expect Q1 revenue to be in the range of $217,000,000 to $225,000,000 1st quarter revenue for Photronics is typically seasonally lower than 4th quarter. And as I mentioned, this year's Q1 has fewer days than normal, 89 versus 91 in a typical 4.45 fiscal calendar due to the Q4 ending on October 31, which as I mentioned, Put 93 days into the 4th quarter and shortened the Q1. Photronics has continued to increase revenue during the Higher semi downturn, while many in the industry are reporting revenue declines and the industry as a whole anticipates about a 12% decline In 2023 revenue, due to the design driven somewhat countercyclical nature of the business, We expect to continue to do well in the current semiconductor and display environment, continue to report year over year revenue growth and increase our market leading position. Based on those revenue expectations and our current operating model, We estimate non GAAP earnings per share for the Q1 to be in the range of $0.45 to $0.53 per diluted share. We believe that the increasing trend of both high end IC and FPD and our additions to capacity will continue to support Healthy gross margins. Speaker 300:17:58Our disciplined cost control will help ensure that the gross profit flows down to operating income and earnings to continue to build shareholder value. I'll now turn the call over to the operator for your questions. Operator00:18:15Thank If your question has been answered and you'd like to remove yourself from the queue. One moment for questions. Our first question comes from Tom Diffely with D. A. Davidson and Company. Operator00:18:34Your line is open. Speaker 400:18:36Yes. Good morning. Appreciate the chance to ask a question here. First question on the mainstream market. Could you Talk a little bit more about the health of this market in terms of both demand and pricing? Speaker 200:18:49Okay, Tom. The mainstream Business, especially in the A Winch Foundry Business, as many foundry company report Has slowed down quite a bit with a very kind of low wafer fab utilization rate. And with the slower market demand, our premium Charge in this product segment has reduced since Q4 last year, 2023. So, we believe the mainstream business So may continue for another quarter or 2. However, The business from 12 inches Wafer fab seems to stabilize and start to recover In terms of photomask demand, so I think our compound ASP should be able to sustain even our premium Charge in the mainstream has reduced to a certain low label. Speaker 200:20:14Tom, I'd like Speaker 300:20:15to supplement that a little as well just in terms of pricing. So as Frank mentioned, the premiums have Essentially, not quite disappeared, but eroded significantly. Nonetheless, The pricing, I sort of compare it to the inflation picture in the U. S. Where the inflation rate Has tapered off to 3%, 3.5%, but nonetheless, the prices are still 17% higher than they were 2 or 3 years ago. Speaker 300:20:48So we've wound up with the same situation with IC pricing where although the premiums have Really almost evaporated. The pricing is still at a level and I kind of referred to that in my comments We were still able to maintain this upper 30 mid to high 30% gross margin level. Speaker 400:21:12Okay. Maybe just to follow-up on that. Is pricing still below where it would cost to buy a new tool in the marketplace To build extra capacity, such that it should remain a fairly stable market for you over the next few years? Speaker 200:21:31Yes. Actually, as Tom mentioned, our price for mainstream has Increased by quite a certain percentage 2 years ago. And during these 2 years, The price erosion is very minimal, even premium discharge. So for mainstream business, Our major capital investment basically will be in a replacement for the End of life tour, there will be not much new capacity, especially in the mentioned area. So the only capital spending will be for annualized replacement And current pricing will sustain our current margin level. Speaker 400:22:31Okay. Thank you for that. And then just curious on the high end IC side, what are some of the end market drivers that you're seeing for it? Speaker 200:22:46We see a lot of demand still from the AMOLED driver IC, which use 22 2 28 nanometer technology and this is our strength. We are the Major merchant market supplier for this technology nodes and the applications basically Mandy for Traveler IC. Chris, you want Speaker 500:23:17to add some color to this? Yes. Thanks, Tom. It's pretty wide actually, but like some of the companies we follow, auto is down Some others like TI reported pretty good auto demand, but definitely it's still driving some tape out activity, Particularly in the compound semiconductor area. A lot of the FAS utilization is kind of bottom, but it's running pretty low Still historically in the maybe high 60s. Speaker 500:23:47So there's a lot of new product development going on in consumer electronics and Those fields which are driving tape out demand, but not so much wafer volumes. Particularly in Q4, there was a fair amount of design activity on the Industrial is still pretty weak. Everything around the so called AI ecosystem is pretty healthy. So we don't build a lot of photomassets, although some for direct AI processors, but all the ancillary chips that go around these AI applications were quite strong, as you could imagine, falling in the industry. So there's no segment I think we see really spiking back strong, but it's relatively broad and a lot of design activity to try to refill Wafer capacity because inventory has also been worked down. Speaker 500:24:39So there's some reorders and things like that and pipeline as well. Memory is still pretty weak overall. Pricing stabilized and memory is still pretty weak. Particularly, our 3 d NAND business was down Fairly strongly and has not fully recovered yet. Speaker 400:24:56Okay. Yes. No, I mean, the reason I asked the question is, we basically heard that Most of the segments are bouncing along the bottom here. It's, I guess, pretty impressive you've been able to keep your revenue flow as you have despite the slowdown. And Most people expect that starting maybe mid next year, we start to see some recoveries and it's put you in a good position for that. Speaker 400:25:17So, I guess on that same front, where do you see capacity constraints right now and where are you going to focus the $140,000,000 of CapEx? Speaker 200:25:28Our major investment will be number 1, as I mentioned, At the end of the live tour replacement, the other one is that we are positioning ourselves to The demand in 2022 and 28 photo mass demand, especially in China And also, we are going to enhance our U. S. Sharp Capacity and capability. So some investment will be in the state for Boise and Allensight. Speaker 400:26:09Okay, great. And final question, maybe for Chris. A few years ago, you talked about the EUV consortium and how you're part of that. Any update on how that activity is going or what potential role you might play there? Speaker 500:26:27I mean, overall, our EUV business continues to grow year over year and even quarter over quarter. The OEM side of that business is probably the strongest and then class of products we call fab products is also Fairly strong because there's a lot of EUV scanners entering the industry. And then the 3rd category, device masks, either prototype and demo masks, also Growing. So consistent with ASML's reports, we see a lot of strength in EUV and the merchant market gradually evolving And we're in a pretty good position for that. As far as consortia, we're still in discussions with various groups. Speaker 500:27:08We're pretty well plugged into The New York CREATES program, and they just announced a very large state sponsored funding infusion into that project. There's also a consortium forming in Japan. We are starting to have conversations with as well around the RAPPENUS project. So Nothing I think we can announce right now, but there's 2 or 3 different avenues we're pursuing now to join on to these consortia initiatives. Speaker 400:27:40All right. Well, great. Well, thank all 3 of you for your time today. Speaker 300:27:45Thank you, Tom. Thanks very much for coming on to the call. Operator00:27:50Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the call over to Frank Lee for closing comments. Speaker 200:28:05Thank you, Michelle. Thank you for joining us this morning. We performed well in 2023 and are positioned to continue this performance in 2024. Long term, our end markets I expect it to grow significantly. As the merchant photo mass leader, we are in a great position To continue to outgrow the market, leveraging our competitive advantage to serve our growing Global customers. Speaker 200:28:43I'm proud of our team's performance in 2023, delivering record revenue And firmly establishing Photronics as the emerging Fotomast partner of choice. We are optimistic Regarding our future growth opportunities and look forward to updating you as we make progress. Have a good day and thank you. Operator00:29:11Ladies and gentlemen, that concludes the conference call for today. We thank you for yourRead morePowered by Conference Call Audio Live Call not available Earnings Conference CallPhotronics Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) Photronics Earnings HeadlinesPhotronics (NASDAQ:PLAB) Might Have The Makings Of A Multi-BaggerMay 5 at 7:14 PM | finance.yahoo.comShort Interest in Photronics, Inc. (NASDAQ:PLAB) Grows By 23.2%May 5 at 2:39 AM | americanbankingnews.comThe Trump Dump is starting; Get out of stocks now?The first 365 days of the Trump presidency… Will be the best time to get rich in American history.May 6, 2025 | Paradigm Press (Ad)Photronics Appoints New CFO Eric RiveraMay 2, 2025 | tipranks.comPhotronics CEO Makes a Significant Stock Sale!April 29, 2025 | tipranks.comPhotronics: Valuation Increasingly Attractive Despite Delayed Recovery Amidst Tariff ChaosApril 22, 2025 | seekingalpha.comSee More Photronics Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Photronics? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Photronics and other key companies, straight to your email. Email Address About PhotronicsPhotronics (NASDAQ:PLAB), together with its subsidiaries, engages in the manufacture and sale of photomask products and services in the United States, Taiwan, China, Korea, Europe, and internationally. It offers photomasks that are used in the manufacture of integrated circuits and flat panel displays (FPDs); and to transfer circuit patterns onto semiconductor wafers, and FDP substrates. The company offers electrical and optical components. It sells its products to semiconductor and FPD manufacturers, designers, and foundries, as well as to other high-performance electronics manufacturers through its sales personnel and customer service representatives. The company was formerly known as Photronic Labs, Inc. and changed its name to Photronics, Inc. in 1990. Photronics, Inc. was incorporated in 1969 and is based in Brookfield, Connecticut.View Photronics ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Palantir Stock Drops Despite Stellar Earnings: What's Next?Is Eli Lilly a Buy After Weak Earnings and CVS-Novo Partnership?Is Reddit Stock a Buy, Sell, or Hold After Earnings Release?Warning or Opportunity After Super Micro Computer's EarningsAmazon Earnings: 2 Reasons to Love It, 1 Reason to Be CautiousRocket Lab Braces for Q1 Earnings Amid Soaring ExpectationsMeta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2 Upcoming Earnings ARM (5/7/2025)AppLovin (5/7/2025)Fortinet (5/7/2025)MercadoLibre (5/7/2025)Cencora (5/7/2025)Carvana (5/7/2025)Walt Disney (5/7/2025)Emerson Electric (5/7/2025)Johnson Controls International (5/7/2025)Lloyds Banking Group (5/7/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 6 speakers on the call. Operator00:00:00Good day, and welcome to the Photronics Q4 FY 'twenty three Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference is being recorded, Wednesday, December 13, 2023. I would now like to turn the conference over to Michelle Burr, Chief Administrative Officer. Speaker 100:00:23Thank you, Michelle. Good morning, everyone. Welcome to our review of Photronics' fiscal 2023 4th quarter results. Joining me this morning are Frank Lee, our Chief Executive Officer Chris Progler, our Chief Technology Officer John Jordan, our Chief Financial Officer and Eric Rivera, Our Chief Accounting Officer and Corporate Controller. The press release that we issued earlier this morning, together with the presentation material that accompanies our remarks, are available on the Investor Relations section of our webpage. Speaker 100:00:53Comments made by any participant on today's call may include forward looking statements that includes such words as anticipate, believe, estimate, expect, forecast and in our view. These forward looking statements are based upon a number of risks, uncertainties and other factors that are difficult to predict. Actual results may differ materially from those expressed or implied, and we assume no obligation to update Any forward looking information. During the course of our discussion, we will refer to certain non GAAP financial metrics. These numbers are useful for analysts, investors and management to evaluate ongoing performance. Speaker 100:01:38A reconciliation of these metrics to GAAP financial results is provided in our presentation materials. At this time, I will turn the call over to Frank. Speaker 200:01:49Thank you, Rachel, and good morning, everyone. The Photronics team had another outstanding year in 2023 and delivered record revenue for the 6th Over the last 6 year period, we have achieved a compound annual revenue growth rate of over 12%. For full 2023, revenue grew 8% year over year, While the photomask market overall was fracked and the semiconductor industry overall It is expected to contract by up to 12%. The Votronics year over year revenue growth Once again, offers testimony to the tendency of design driven photomask demand To be less cyclical than the industry in general. Most recent indications from Industry leaders and from our customers is that the current semiconductor cycle contraction Thus, the effect cycles and current observation can be considered indicators Photomass demand should resume a more robust growth phase during for China's second to third Physical quarters. Speaker 200:03:34Margins for the quarter year were also outstanding. We achieved operational margin of 28.5 percent for the 4th quarter and 28.4% for the full year 2023, The best year in the history of the company. The combination of the following has continued to support The sustainability of this margin level, the high operation leverage, Stable pricing from our long term purchase agreement, our focus on delivering the best quality mask And our driving for being the low cost producer. As a result of the solid operation results And the contribution from below the line items we earned in Q4, $0.72 per share on a GAAP basis and $0.60 per share on a non GAAP basis. Strong cash flow was generated in 2023, contributing to a stronger balance sheet And increasing our cash position with reducing debt, we continue to invest in growth, Position us to continue the past several years' strong performance. Speaker 200:05:07To summarize, We achieved another record year in 2023, growing revenue year frame market. Our team performed well and our customers continue to trust us as their photo mask partners. We are investing in high return projects and are positioned to continue to outgrow the market and create value for our shareholders. I'm proud of our accomplishment and excited about our future. And I would especially like to express my gratitude For the more than 1800 employees that have worked hard to achieve these results, At this time, I will turn the call over to John to discuss the results further. Speaker 300:06:06Thank you, Frank. Good morning, everyone. Our 4th quarter finalized another great year for Photronics. In my comments, I'll first discuss the 4th quarter results, then the results for the full fiscal year. 4th quarter revenue of $227,500,000 increased 8% over Q4 of last year and 1% Sequentially. Speaker 300:06:33Photronics' 4th quarter always ends on October 31, which may add Or subtract days to the standard 91 day 4.45 fiscal calendar. This year, Q4 was boosted by an extra 2 days in the quarter. It was our 2nd highest quarterly revenue ever, only 1% Our revenue into China in Q4 declined from 53% of total revenue in Q3 to 44%, Replaced by revenue with other customers. It might be worthwhile to add some further color regarding the China business. Although we derive a good portion of revenue from China as do others in the semiconductor and display industry, What makes China business somewhat unique is that there is a significant number of new designs and fabs in China Driving Photomass Demand. Speaker 300:07:40And since there is a much smaller captive market in China, the preponderance of the Photomass production is being provided by merchant manufacturers like Foottronics. The business by major category, I see revenue of $164,500,000 in the 4th quarter was up 1% sequentially and 5% year over year. Our high end revenue defined as IC masks using 28 nanometer and smaller technology drove the increase With 27% sequential growth, which more than offset the reduction in mainstream revenue. High end revenue was strong in foundrylogic in both U. S. Speaker 300:08:25And Asia. The 9% decrease in mainstream revenue resulted in large part From lower delivery premiums due to somewhat moderated demand and more normalized lead times for those products. For the FPD product category, 4th quarter FPD revenue was a record $63,000,000 up 3% sequentially And 17% year over year, a 7% increase in high end revenue Defined as LTPS AMOLED and G10.5 large area masks Drove the increase from strong demand for AMOLED display masks used in mobile displays where we have technology leadership. The additional FPD production devoted to high end mass production then resulted in 13% lower mainstream revenue. Gross margin was solid at 37.3%, although slightly lower due substantially to the decreased premiums decreased somewhat and declined as a percentage of revenue to less than 9%, helping us achieve an operating margin of 28.5% in the quarter. Speaker 300:09:47GAAP net income in the quarter was $44,600,000 or $0.72 per diluted share. Non GAAP net income, which eliminates foreign currency effects primarily unrealized, was $37,200,000 or $0.60 a share. For reference, our reconciliation of GAAP to non GAAP results is included in the press release and supplemental slides. For the year, total revenue of $892,100,000 was 8% higher Then the $824,500,000 reported in fiscal year 2022, the 6th Straight year of record revenues, as Frank mentioned, a compound annual growth rate of 12% over the last 6 years. Revenue in fiscal year 2023 was nearly double the revenue of fiscal year 2017 When we repositioned the business and initiated the targeted investments to address where we anticipated growth to be in the photo mask space. Speaker 300:10:57IC revenue for the year was a record and grew 9.8% as strong demand for mainstream masks for a good part of the year I've set a slight decrease in high end revenue primarily in the U. S. Near term, our investment will be primarily in IC capacity to continue outgrowing the market and take advantage of our market strength and close customer relationships. FPD revenue is also a record for the year, up 4% With high end growth consistently driven by AMOLED demand, we anticipate this trend to continue into fiscal 2024. Gross margins for the year were 37.7%, 200 basis points over the strong gross margin in fiscal 2022, and we anticipate the gross margin will remain in the current Thanks to the stable pricing, cost controls and operating leverage. Speaker 300:12:02Maintenance of this level of gross margin In the face of erosion of delivery premiums during the latter half of the year indicates a pricing and operating environment that supports the sustainability of the margins. Operating expense for the year was nearly unchanged from the prior year, up less than $800,000 and declined as a percentage of revenue to 9.3% from 10% in the prior year. Operating margin was 28.4% compared to 25.7% In fiscal 2022, an operating income in fiscal 2023 was $253,000,000 During our 6 years of 12% revenue growth, operating income has grown at a compound annual growth rate of 41% and operating margin quadrupled. GAAP EPS for the year was $2.03 and adjusted for the effects of foreign exchange variations, non GAAP EPS was $2.04 GAAP EPS similarly has grown at a CAGR compound annual growth rate of 48% During the 6 years, revenue has increased 12%. Operating cash flow of $106,600,000 for the quarter and $302,200,000 for the year were also records for the company, resulting from higher net income and effective management of working capital. Speaker 300:13:45CapEx for the quarter was $21,100,000 And $131,200,000 for the year, which resulted in free cash flow for the year of $170,900,000 For 2024, we expect to invest $140,000,000 in CapEx, primarily in both high end and mainstream IC to address current and anticipated demand growth. We'll also be taking delivery of a new multi beam lithography tool in the U. S. For development, then Page into high end production enhancements, then leading edge development during our fiscal year 2025. We ended the year with a cash balance of $499,300,000 and short term investments of 12,900,000 Some investments of cash that were previously classified as short term investments have been reinvested in shorter term instruments That are now classified as cash equivalents and included in the cash and cash equivalents balance at October 31, 2023. Speaker 300:14:57The aggregate of cash and cash equivalents and short term investments Increased from $358,500,000 at year end 2022 to $512,200,000 at October 31, 2023. Our only remaining debt Consists of low cost equipment leases of $24,600,000 Our net cash position of 475,000,000 provides ample liquidity to fund investments in organic growth. It also has continued to provide resilience against uncertainties inherent In an industry downturn, we have $32,000,000 remaining of our previous $100,000,000 authorization to repurchase our common stock and we will continue evaluating when to resume the share repurchase initiative. Before I provide guidance, I'll remind you that our visibility is always limited as our backlog is typically only 1 to 3 weeks And demand for some of our products is inherently uneven and difficult to predict. Additionally, the ASP's high end mask And as this segment of the business grows, a relatively low number of high end orders Can have a significant impact on our quarterly revenue and earnings. Speaker 300:16:24Given those caveats, We expect Q1 revenue to be in the range of $217,000,000 to $225,000,000 1st quarter revenue for Photronics is typically seasonally lower than 4th quarter. And as I mentioned, this year's Q1 has fewer days than normal, 89 versus 91 in a typical 4.45 fiscal calendar due to the Q4 ending on October 31, which as I mentioned, Put 93 days into the 4th quarter and shortened the Q1. Photronics has continued to increase revenue during the Higher semi downturn, while many in the industry are reporting revenue declines and the industry as a whole anticipates about a 12% decline In 2023 revenue, due to the design driven somewhat countercyclical nature of the business, We expect to continue to do well in the current semiconductor and display environment, continue to report year over year revenue growth and increase our market leading position. Based on those revenue expectations and our current operating model, We estimate non GAAP earnings per share for the Q1 to be in the range of $0.45 to $0.53 per diluted share. We believe that the increasing trend of both high end IC and FPD and our additions to capacity will continue to support Healthy gross margins. Speaker 300:17:58Our disciplined cost control will help ensure that the gross profit flows down to operating income and earnings to continue to build shareholder value. I'll now turn the call over to the operator for your questions. Operator00:18:15Thank If your question has been answered and you'd like to remove yourself from the queue. One moment for questions. Our first question comes from Tom Diffely with D. A. Davidson and Company. Operator00:18:34Your line is open. Speaker 400:18:36Yes. Good morning. Appreciate the chance to ask a question here. First question on the mainstream market. Could you Talk a little bit more about the health of this market in terms of both demand and pricing? Speaker 200:18:49Okay, Tom. The mainstream Business, especially in the A Winch Foundry Business, as many foundry company report Has slowed down quite a bit with a very kind of low wafer fab utilization rate. And with the slower market demand, our premium Charge in this product segment has reduced since Q4 last year, 2023. So, we believe the mainstream business So may continue for another quarter or 2. However, The business from 12 inches Wafer fab seems to stabilize and start to recover In terms of photomask demand, so I think our compound ASP should be able to sustain even our premium Charge in the mainstream has reduced to a certain low label. Speaker 200:20:14Tom, I'd like Speaker 300:20:15to supplement that a little as well just in terms of pricing. So as Frank mentioned, the premiums have Essentially, not quite disappeared, but eroded significantly. Nonetheless, The pricing, I sort of compare it to the inflation picture in the U. S. Where the inflation rate Has tapered off to 3%, 3.5%, but nonetheless, the prices are still 17% higher than they were 2 or 3 years ago. Speaker 300:20:48So we've wound up with the same situation with IC pricing where although the premiums have Really almost evaporated. The pricing is still at a level and I kind of referred to that in my comments We were still able to maintain this upper 30 mid to high 30% gross margin level. Speaker 400:21:12Okay. Maybe just to follow-up on that. Is pricing still below where it would cost to buy a new tool in the marketplace To build extra capacity, such that it should remain a fairly stable market for you over the next few years? Speaker 200:21:31Yes. Actually, as Tom mentioned, our price for mainstream has Increased by quite a certain percentage 2 years ago. And during these 2 years, The price erosion is very minimal, even premium discharge. So for mainstream business, Our major capital investment basically will be in a replacement for the End of life tour, there will be not much new capacity, especially in the mentioned area. So the only capital spending will be for annualized replacement And current pricing will sustain our current margin level. Speaker 400:22:31Okay. Thank you for that. And then just curious on the high end IC side, what are some of the end market drivers that you're seeing for it? Speaker 200:22:46We see a lot of demand still from the AMOLED driver IC, which use 22 2 28 nanometer technology and this is our strength. We are the Major merchant market supplier for this technology nodes and the applications basically Mandy for Traveler IC. Chris, you want Speaker 500:23:17to add some color to this? Yes. Thanks, Tom. It's pretty wide actually, but like some of the companies we follow, auto is down Some others like TI reported pretty good auto demand, but definitely it's still driving some tape out activity, Particularly in the compound semiconductor area. A lot of the FAS utilization is kind of bottom, but it's running pretty low Still historically in the maybe high 60s. Speaker 500:23:47So there's a lot of new product development going on in consumer electronics and Those fields which are driving tape out demand, but not so much wafer volumes. Particularly in Q4, there was a fair amount of design activity on the Industrial is still pretty weak. Everything around the so called AI ecosystem is pretty healthy. So we don't build a lot of photomassets, although some for direct AI processors, but all the ancillary chips that go around these AI applications were quite strong, as you could imagine, falling in the industry. So there's no segment I think we see really spiking back strong, but it's relatively broad and a lot of design activity to try to refill Wafer capacity because inventory has also been worked down. Speaker 500:24:39So there's some reorders and things like that and pipeline as well. Memory is still pretty weak overall. Pricing stabilized and memory is still pretty weak. Particularly, our 3 d NAND business was down Fairly strongly and has not fully recovered yet. Speaker 400:24:56Okay. Yes. No, I mean, the reason I asked the question is, we basically heard that Most of the segments are bouncing along the bottom here. It's, I guess, pretty impressive you've been able to keep your revenue flow as you have despite the slowdown. And Most people expect that starting maybe mid next year, we start to see some recoveries and it's put you in a good position for that. Speaker 400:25:17So, I guess on that same front, where do you see capacity constraints right now and where are you going to focus the $140,000,000 of CapEx? Speaker 200:25:28Our major investment will be number 1, as I mentioned, At the end of the live tour replacement, the other one is that we are positioning ourselves to The demand in 2022 and 28 photo mass demand, especially in China And also, we are going to enhance our U. S. Sharp Capacity and capability. So some investment will be in the state for Boise and Allensight. Speaker 400:26:09Okay, great. And final question, maybe for Chris. A few years ago, you talked about the EUV consortium and how you're part of that. Any update on how that activity is going or what potential role you might play there? Speaker 500:26:27I mean, overall, our EUV business continues to grow year over year and even quarter over quarter. The OEM side of that business is probably the strongest and then class of products we call fab products is also Fairly strong because there's a lot of EUV scanners entering the industry. And then the 3rd category, device masks, either prototype and demo masks, also Growing. So consistent with ASML's reports, we see a lot of strength in EUV and the merchant market gradually evolving And we're in a pretty good position for that. As far as consortia, we're still in discussions with various groups. Speaker 500:27:08We're pretty well plugged into The New York CREATES program, and they just announced a very large state sponsored funding infusion into that project. There's also a consortium forming in Japan. We are starting to have conversations with as well around the RAPPENUS project. So Nothing I think we can announce right now, but there's 2 or 3 different avenues we're pursuing now to join on to these consortia initiatives. Speaker 400:27:40All right. Well, great. Well, thank all 3 of you for your time today. Speaker 300:27:45Thank you, Tom. Thanks very much for coming on to the call. Operator00:27:50Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the call over to Frank Lee for closing comments. Speaker 200:28:05Thank you, Michelle. Thank you for joining us this morning. We performed well in 2023 and are positioned to continue this performance in 2024. Long term, our end markets I expect it to grow significantly. As the merchant photo mass leader, we are in a great position To continue to outgrow the market, leveraging our competitive advantage to serve our growing Global customers. Speaker 200:28:43I'm proud of our team's performance in 2023, delivering record revenue And firmly establishing Photronics as the emerging Fotomast partner of choice. We are optimistic Regarding our future growth opportunities and look forward to updating you as we make progress. Have a good day and thank you. Operator00:29:11Ladies and gentlemen, that concludes the conference call for today. We thank you for yourRead morePowered by