Q4 2022 Photronics Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Yeah.
Good day, and thank you for standing by welcome to the Photronics fourth quarter and full year 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded Tuesday December 13th 2022, I would now like to hand, the conference over to your host Michelle Berrey.
Is that Gonna Vice President Chief administrative officer, and General Counsel. Please go ahead.
Thank you Michele good morning, everyone welcome to our review of books.
When he came full year and fourth quarter results.
Joining me.
Okay.
Okay.
Chris.
Okay.
Yeah.
Okay.
Right.
Okay.
Okay.
Okay.
Yeah.
Yeah.
Okay.
Okay.
Paul.
Okay.
Right.
Yeah.
Yeah.
Okay.
Okay.
Yes.
Yeah.
Yes.
Okay.
Uh huh.
Okay.
Yeah.
Okay.
Yes.
Okay.
Oh I'm sorry.
Yes.
Great.
Okay.
That'd be like ongoing performance.
Some of these metrics to GAAP financial results is provided in our presentation.
At this time.
I will turn the call over to Frank.
Michelle.
Good morning, everyone.
Q4 was.
Finish to a great year.
Yes.
What percent.
These tools, so we oh.
Oh.
Yeah, all right.
Oh, sorry.
Okay.
Bangalore.
We saw growth across nearly all car types.
That's clear.
Technology.
Operational excellence and close customer relationships.
The box you need that.
Q4.
That's been sort of a quarter.
Which statements.
Do you guys see.
But that would be indicated by Kodak.
Gotcha industry downturn.
Is that right.
Two stage trial.
Yes.
The impact from depreciation of Asian currencies.
S business.
Hey, Bob.
What would be deemed that sector.
Man.
Yeah.
We maintain our positive view on their own.
Pump demand trend.
Yeah.
Gross margin and operation margin.
Market watch.
Comparably.
Uh huh.
The market.
Thank you Kirk.
Body by Cross state.
<unk>.
While we continue to benefit from strong pricing.
We also realized foreign exchange gain that John will discuss in more detail later.
The end result is.
EPS of 60 cents for fourth quarter.
Yeah.
Looking now to industrial.
Why is that.
In addition, all costs come out of capacity.
Intact in the long term.
The picture is cloudy here too.
Marquee all suffered.
Factors, such as the high interest rate.
Oh I see compression.
Hum.
Having a negative impact.
Some sectors.
Tony product approach yet.
And could it potentially impactful Tomas.
More Olga.
It is.
Is that U S common common men's and U S.
Imports from China on certain semiconductor technologies.
In fact, the Chinese IC industry.
So far.
The patients have.
Maybe mark impact such high speeds.
Operations.
However.
That situation is dynamic and fruit, which will weigh contingent monotype.
At the same time.
In short all comprise with all of the ratios.
Taking necessary actions to mitigate the impact on cost approach.
Yes.
Although D.
Okay.
We are confident.
The design and manufacturing continue to pray.
Sure.
Gabriel.
<unk> economy.
So Tomas is a key element will be in the ecosystem.
We're continuing to thrive.
Other loan types.
Correct.
I see many gradually reaching ization.
We're in the investment cost of the war.
It's new capacity additions.
Additionally, photo mask events.
Flex office.
We're capitalizing on these opportunities around that position.
And spreads.
Our cost of my relationship beyond trials.
Our technology service quality.
<unk> production capacity.
This customer relationship.
Hi.
A long term play.
And that continues.
Continuing to support all competitive.
Okay.
I would like to thank you.
Tie ups.
Excellent.
In the fourth quarter instead of the whole year.
We navigate challenges that change.
If great opportunities as well.
I'm not the right way.
Alrighty.
What is the impact.
And on track to achieve our financial topics.
I'm proud of what we have accomplished together.
MPD, we can do even better.
Sure.
At this time I will turn the call to Jim.
Thank you Frank.
Good morning, everyone.
Revenue in the fourth quarter was lower sequentially.
Somewhat softer demand trends are experienced both IC and <unk>.
Primarily for high end products.
Our product diversity and global customer base to help.
Very good high end stuff is sort of mainstream revenue higher for both IC and <unk>.
We have invested and tool sets for a broad array of technologies and notes, enabling us to support our customers' technology Road map.
Both high end and mainstream.
As a result fourth quarter revenue of 210 billion was down only 4% sequentially. Despite such claims.
Product revenue.
Our commercial teams have done a great job working with customers to identify opportunities.
Our operations teams were effective in supporting this committed on time execution.
Delivering the highest quality products that enable our customers' success.
I see with revenue of $176 million in the fourth quarter was up 25% year over year.
It's down 3% sequentially.
Although high end revenue was lower quarter over quarter due to some reduction in agent foundry logic demand.
Business has been significantly better than last years fourth.
And some increases in capacity through the year.
Midstream revenue improved on continued strong demand, especially in Asia.
MPD revenue of $54 million was down 8% quarter over quarter, and 3% year over year demand from both a split of masks was lower.
Panel makers focused on producing covered products for new premium smartphones and not re leasing.
<unk> designs.
G 10, five plus demand was also lower during the fourth quarter were successful in picking up.
So the mortgage so to maintain the higher maintained higher capacity utilization.
Gross and operating margins were essentially flat with third quarter.
As improved pricing and continued cost discipline offset the negative impact of lower volumes on operating leverage.
Gross margin of 38, 2% and operating margin of 28% are already within our target range.
Based on our outlook and our continued focus on cost reductions.
To continue to deliver margin improvement as our revenue moves into the targets themselves with.
With price increases holding stable in 2023.
Outlook for continuation of premiums.
Certain.
Operating expenses decreased compared with the third quarter as we balance the need to maintain margins. While also investing in people and resources to support revenue growth positioning us to continue to grow both revenue.
Got it.
Non operating income of $11 billion was primarily due to FX gains primarily resulting from re measurement of U S. Dollar denominated balances in foreign locations into the local functional currencies.
Income tax provision of $16 million resulted in an effective tax rate of 20.
100% for the fourth quarter and 25% for the full year.
Diluted EPS for Q4 was 60 cents.
18% increase over Q3.
82% increase over the 73 cents of last year's fourth quarter.
Diluted EPS for the whole year of 2022 is that all of that before.
An increase of 118% over 2021, demonstrating the achievement of the entire <unk> team.
A challenging and changing here.
Cash flow generated from operating activities for $79 million in the fourth quarter, bringing the 2022 total operating cash flow to $275 million.
We used this cash to invest in both by funded capital expenditures of $66 million in the quarter full year Capex was $190 million.
$4 billion in government subsidies for.
For 2023 reached their capex to be approximately $130 million as we continued to invest in growth primarily for high end and mainstream IC capacity.
We also continued to reduce debt during the quarter, bringing total year end total long term debt to $42 million a reduction of $69 million.
Since last year end.
Cash balance at the end of the quarter.
We improved short term investments of 39 billion.
Cash and short term investments at the end of the quarter was $316 million.
Balance sheet is strong and flexible.
We're able to pursue both op invest.
Investments, both organic and inorganic growth also being prepared to weather incentives or future.
<unk> and uncertainty.
Before I provide guidance I will remind you that our visibility is always limited as our.
Backlog is typically only months three routes that demand for some of our products is inherently uneven and.
Difficult to predict.
Additionally, speeds for high end mask sets are high.
As this segment of the business grows a relatively low number.
The orders can have a significant impact on our quarterly revenue and earnings.
Given those caveats, we expect first quarter revenue in the range of $230 million to $213 million.
We expect positive demand trends with less than typical seasonality.
Based on those revenue expectations and our current operating model we have.
Estimate earnings per share for the first quarter.
The range of 40 to 48.
Per diluted share.
2022, it was a great year.
It was 24% posted our fifth consecutive.
Year of record revenue.
Margins, which places us into the bottom end of the range and our target model and strengthened our balance sheet generating cash reducing debt and investing in growth.
Looking forward, we believe positive long term market trends and our leadership position together with financial flexibility positions us to continue our profitable growth and achieve even greater success for our customers our employees and.
Our shareholders.
I will now turn the.
Operator.
Thank you and again if you have a question at this time. Please press star one on your Touchtone telephone one moment, while we compile our Q&A roster.
And our first question comes from the line of Hans Chung with D. A Davidson. Your line is open. Please go ahead.
Hi, Thank you for taking my question so.
First.
So it.
It seems that you have that.
Pretty good gross margin for the quarter and that.
Just wanted to kind of.
Tie back or what's the driving factor.
I know you mentioned the cost management and then the pricing scale bearable. So just any detail on that and then.
How should we think about the gross margin at 23.
Okay.
Well.
Hans I think theyre, having technical issues, just a moment sir.
Okay.
Right.
Okay.
Shell.
Hello.
I can hear you now Sir go ahead.
Okay, Yeah, so so perky yep.
I'm not sure where.
Where did we leave us with.
Yes, So let me let me do it.
Due to the pricing environment.
Very good so our pricing is stronger than.
That has not been historically and we expect that pricing to maintain we've seen even as demand.
This is still strong, but not quite what it has been the pricing holds up.
Pricing agreements.
Across the board.
In Asia they have held.
As debate is not quite as strong.
We did.
We have had premiums as people.
Quote.
Q.
To move up in the disturbing skewed for mainstream deliveries.
It's been much more extended than it had been historically.
Premiums are less predictable but.
Through the fourth quarter, both pricing and.
Premiums have held up so the combination of a change.
Change in mix with some.
Some of our operations.
Our business.
Improving their margins and with sustained pricing strength.
We think we will stay within the margin ranges.
<unk>.
Got it and then.
Next question.
I know you mentioned that the trend in recent impact on China.
The restriction that that's minimal to our business so but.
But you also mentioned there is some uncertainty just wanted to kind of get more.
Understanding that what's important show rates.
Our new China export control.
Or is any indirect impact from that.
So so far islands routes we've been.
There are a couple of factors one is that our business in China is primarily mainstream.
And most of the restrictions that are issued to prevent.
Leading edge technology from leaking into Chinese military primarily so those restrictions.
To some extent are affected us, but we've been able to.
Essentially figure the ball to understand them and work with them. So the restrictions have affected us very visible.
Over the past two years since they've started in closing them.
I think if they stay in the leading edge technologies.
We're proud of.
We remain unaffected.
Which we spend a lot of effort to understand the restrictions as are imposed.
And to make sure that we reached to date.
Within the law.
So so far not much effect there has been some but very minimal.
We expect that to continue.
Luke as as restrictions continued to get issued we will continue to assess.
How do they affect our business.
Work within the restrictions hopefully we will continue to experience the same.
<unk> been able to effect that we can because directed primarily.
Our leading edge technologies, where we're not engaged.
As Curtis Center.
One thing to that if.
If there is a positive side to this.
As the leading edge as being competitive restricted in China that capacities getting deployed to midrange and mainstream so thats, creating a fairly healthy design pipeline had been range of mainstream nodes in China, you've seen that the local facility. So.
Those are sweet spot notes for us, particularly.
Tooled up there so that's.
That's correct.
Situations that fortunate, but that's kind of a positive knockout effect for our local business.
Got it thank you I'll jump to kit.
Thank you and one moment for our next question.
And our next question comes from the line of Gus Richard with Northland Capital Markets. Your line is open. Please go ahead.
Yes, thanks for taking the question.
Six months ago tow Pan photo mask was spun out and sold to private equity and Im just wondering given that transaction, it's been a little bit of time, how has that affected the market or our Hudson it.
Okay.
Michelle we still has that sounds like a difficulty.
Yep, you're loud and clear Sir.
Thank you.
So we have other other questions.
Did you not hear Han <unk> question.
There is not.
Would you repeat your question first.
Yes can you hear me.
Thank you Hans.
This is Gus.
Real quick.
Propane photo mask that spun out about six months ago.
And in that state for a while now and I'm just wondering how is that impacting the photo mask market.
Or is it.
Things remain the same.
Cost 10-Q.
Lee.
We don't see it.
A major change in our business model.
Telecom.
Since the spinoff there have been made.
Major capital investment.
Got you.
In Texas, but not materialize so at this moment.
On my side.
We have been seeing.
Difference.
Got it thanks for that and then in terms of the <unk>.
<unk> 30 million in Capex can you provide a little bit of color is that for.
Debottlenecking or are you going to get some.
Hi throughput tools for.
You know mainstream is it going to be for high end, what can you give a little color on where you're investing.
Sure.
Actually.
Okay.
60 miles the equivalent.
In full from us.
Is that also very long Sam as semi conductor business.
So.
We actually have orca.
Let me go ahead and half ago. So.
Two our economy in history.
The main purpose of this tour.
It is true that ministry.
Business expansion and also.
We don't have some tour, which.
So it could be end of life. So.
We earned.
Toward replacement.
To manage through.
Expansion.
Hey, Matt.
Troy.
Craig.
So the new tool.
It has a better performance higher scope.
So we expect.
Not only.
Every craftsmen.
He's done.
New capacity.
Added to our overall production capacity.
Got it and then the last one for me.
Talked a little bit about <unk>.
<unk> stock.
Softening a bit.
Can you.
Put that in context of lead times.
It lead times have stretched quite a bit.
From days to weeks.
Weeks or months.
How has the lead time changed over that.
Of course of the quarter.
Okay.
The sofa.
Catch rates.
Two or three months ago.
<unk> Patil.
Particularly.
Hi, Syed.
Uh huh.
But.
I didn't really impact our.
Our fab utilization, we still have.
Yeah.
Look.
But of course, it needs time to customer SBA reduced because of that.
Right.
Enable is lower.
Sure.
Certain size.
Right.
The demand for it.
It's coming back.
At this moment.
Is that it'll be too early to be very precise.
Terms of the buyback.
Buyback.
All right.
Turning to SaaS and customer when do we see.
Hi.
Paypal stopped will come back.
Okay got it got it.
I think thats it for me thanks, so much.
Thank you guys. Thank you.
Thank you and I'm showing no further questions at this time and I'd like to hand, the conference back over to Frank Lee for any further remarks.
Thank you sure.
Thank you for joining us.
I am very pleased with out of home as a target or a tool.
All of the way our team has responded to the Carrington and Charlie changing environment.
We are way up position to continue our SaaS in the future.
Looking forward to.
As we continue to make progress.
Thank you for your interest.
Good day. Thank you everybody. Thank you.
This concludes today's conference. Thank you for participating you may now disconnect everyone have a great day.
Okay.
Thank you Michelle.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Okay.