Q3 2024 Photronics Inc Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to Fotronic 3rd quarter fiscal year 2024 earnings call. At this time, all participants are in the list and only mode.
Unknown Executive: School Year 2024 earnings call. At this time, all participants are in a listen-only mode.
Unknown Executive: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you would need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you would need a press star 111 on your telephone. You would in here and on a made a message of advising your hand is raised. Two withdraw your question, please press star 111 again.
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Unknown Executive: Please be advised that today's conference is being recorded on Thursday, August 29, 2024.
Speaker Change: Please be advised that today's conference is being recorded on Thursday, August 29, 2020, before. I would like now to turn the conference over to Eric Rivera, Chief Financial Officer. Please go ahead.
Eric Rivera: I would like now to turn the conference over to Eric Rivera, Chief Financial Officer. Please go ahead.
Eric Rivera: Thank you, Michelle.
Eric Rivera: Good morning, everyone. Welcome to our review of Photronics, fiscal 2024 third quarter results. Joining me this morning are, frankly, our Chief Executive Officer and Chris Progler, our Chief Technology Officer. The press release we issued earlier this morning, together with the presentation material that accompanies our remarks, are available on the investor relations sections of our webpage.
Eric Rivera: Thank you, Michelle. Good morning, everyone. Welcome to our review of Food Shwanik's fiscal 2024, third quarter results.
Speaker Change: is joining me this morning, our frankly, our chief executive officer and Chris Progler, our Chief Technology Officer.
Speaker Change: The press release we issued earlier this morning together with the presentation material that companies are available on the investor-relation sections of our web page.
Eric Rivera: Comments made by any participants on today's calls may include four looking statements that include such words as anticipate, believe, estimate, expect, forecast, and interview. These four looking statements are based upon a number of risks, uncertainties, and other factors that are difficult to predict. Although we believe that the expectations reflected in the four looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We're under no duty to update any of the four looking statements after the date of the presentation to conform these statements to actual results.
Speaker Change: Comments made by any participants on today's calls, may include four-looking statements that include such words as anticipate, believe, estimate, expect, forecast, and interview.
Speaker Change: These four looking statements are based upon a number of risks on certainties and other factors that are difficult to predict.
Speaker Change: Although we believe that the expectations reflected in the four-looking statements are reasonable, we can not guarantee fusion results, levels of activity, performance for achievements.
Speaker Change: We're under no duty to update any of the forward-looking statements after the date of the presentation to conform these statements to actual results.
Eric Rivera: 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. A reconciliation of these metrics to GAAP financial results is provided in our presentation materials.
Speaker Change: During the course of our discussion, we will refer to certain non-gap financial metrics. These numbers are useful for analysts, investors, and management to evaluate ongoing performance.
Speaker Change: Reconciliation of these metrics to get financial results is provided in our presentation materials. At this time, I'll turn the call over to Frank. Thank you, Eric, and good morning, everyone.
Frank Lee: At this time, I'll turn the call over to Frank. Thank you, Eric, and good morning, everyone. Third quarter says, can be lighter than we expected, due to soft demand from Azure Foundry as a strong order rate at the beginning of the quarter lost momentum. Lingering macro uncertainty and customer concern are elevated inventory, cause some to limit or differ, reducing new designs. As a result, photo-mass demand slow, resulting in lower sales for both ICNF and FPT. Higher logic must orders decrease while our memory business improves in the quarter. Higher and FPT improves, due to demand for MRI masks used for mobile displays as companies prepare for model release in a recovering smartphone market.
Speaker Change: Third quarter, says, Camine Lytterland, we expected due to soft demand from Asia-Fantry as a strong order rate at the beginning of the quarter, Los Momentan.
Speaker Change: Lingering, Macro, uncertainty and customer concern on elevated inventory, cause some to limit or differ reducing new designs.
Speaker Change: As a redore photo-mars-dimensional, we're working in lower cells for both ICNL and P.D.
Speaker Change: Hayen logic must order a decrease via our memory business improving the quarter.
Epiti Improved: Hi, I'm Epiti Improved, due to the MFMRA mask used for a mobile device as company prepared for model release in a recovering smartphone market.
Frank Lee: Compare with the second quarter, growth margin decreased due to the impact of lower memory. Operation expenses were slightly lower than the second quarter. EPS was 55 cents. After adjusting for an FX scan, LungGap EPS was 51 cents higher than last quarter and the same as last year. We continue to generate strong operation cash, giving us added flexibility to invest in growth while also maintaining a strong balance sheet.
Speaker Change: compare with the second quarter, gross margin decreased due to the impact of lower
Speaker Change: Operation expenses were slightly lower than the second quarter.
Speaker Change: VPS was 55 cents.
Speaker Change: After adjusting for an SS scan, lung gap EPS was 51 cents, higher than mass quarter and the same S-Larsia.
Speaker Change: We continue to generate strong operation case.
Speaker Change: giving us added flexibility to invest in growth while also maintaining a strong balance sheet.
Frank Lee: As a result, we are announcing an increase of our existing share repurchase program to $100 million. Eric will share details in a few minutes, but we believe this is the right time to restart our share repurchase activity and enhance our capital allocation framework. Based on our up-to-measant in a long-range photo mass market, we are also evaluating several goals options including strategic expansion, partner ships, and other possibilities in US, Europe and Asia. We are maintaining flexibility to act quickly in support of our global customers and partners while remaining disciplined to ensure our investments meet financial objectives.
Speaker Change: As a result, we are announcing an increase of our existential repurchase program to $100 million.
Speaker Change: Eric Rivera shared details in a few minutes.
Eric Rivera: But we believe this is the right time to restore our shared repurchase activity and enhance our capital allocation framework.
Eric Rivera: Best of our up to me then in a long-range photo-mass market, we are also evaluating several course options.
Eric Rivera: including strategic expansion.
Speaker Change: Botanized ships and all your possibilities in US, Europe and Asia.
Speaker Change: We are maintaining flexibility to act quickly in support of our global customer and partners.
Speaker Change: who are recommending discipline to ensure our investment with financial objectives.
Frank Lee: I'm very proud and very pleased with the way our team has performed during the quarter. They have taken care of the customers while managing costs and maximizing cash to maintain financial strengths. We have a great team at 4 Chinese, and they are navigating the challenges where.
Speaker Change: I'm very proud, I'm very pleased with the way our team has performed during the quarter. They have taken care of the customers while managing course and maximizing cash to maintain financial stress.
Speaker Change: We have a great team at Fortongis and they are navigating the churches where.
Frank Lee: Turning to the market, I would like to comment on the trend we have seen. Photo mass demand is driven mostly by design activity. Several long-term trends such as AI, mobile computing, and increased IC content in automotive, energy, and consumer applications drive new designs in both leading age and legacy technology nodes, all required in new photo masks. As the global leader in IC mask units, we see a high level of new product qualification across the node spectrum, each with projected revenue opportunities. It is all praywares to our marginal strengths and is a positive long-term trend for our business.
Speaker Change: Tonya in the market, I would like to comment on the trend we are seeing.
Photomas Demain: Photomas Demain is driven mostly by design activity.
Speaker Change: several long-term trends such as AI, mobile computing, increase IC content in automotive, energy, and consumer applications to our new designs in both leading-edge and legacy technology nodes.
Speaker Change: All required in new photo mask.
Speaker Change: As the global leader in IC mask units, we see a high-dabel of new product qualification across the node spectrum.
Speaker Change: H with projected Ramanion Opportunities.
Speaker Change: is all play with to our marginal strengths and is a positive long-term trend for our buildings.
Frank Lee: In addition to new designs, photo mass demand is driven by an increase in wafer manufacturing capacity. New fab are being built globally to meet the growth in applications such as data centers that are needed to support AI, and to support an increase in supply chain rich in automation. This is a positive long-term trend for photo-mass demand. Due to our broad geographical footprint, capacity, and suite of technologies, we are able to provide all of our customers' photo-mass needs. We supply nearly all leading batches with strong market share, especially in Taiwan, China, and Korea. In US and Europe, we are seeing the initial signs of growing demand for regionalization.
Speaker Change: In addition to new designs, photo-masterman is driven by an increase in wither manufacturing capacity.
Speaker Change: Newfab are being be a globally to meet a gross in applications such as data centers that are needed for support AI.
Speaker Change: and to support and increase in the supply chain regional invasion.
Speaker Change: This is a positive long-term trend for photo-master demand.
Speaker Change: Due to our broad geographical footprint capacity and suite of technologies, we are able to provide all of our customers' photo mask needs.
Speaker Change: We supply nearly all the Indian dodgy fab with strong market share, especially in Taiwan, China and Korea
Speaker Change: In US and Europe, we are seeing the initial signs of growing demand for rich in idealization.
Frank Lee: Turning to display, innovation is mostly due to new futures in mobile displays and to a lesser degree new TV technology that improves performance. On a mobile display, this trend was largely supported by new premium smartphones, higher-screen resolution, and the need to add additional functions, such as fingerprint sensor and cameras, while reducing power; required new advanced mass sets. AMOLED continues to be introduced into larger-sized screens, such as tablets and laptops, and the development is underway to produce AMOLED on G8.6 glass. These trends all require high-quality photo-mass. As the technology leader in LCD masks, we are well positioned to benefit from these trends and growth.
Speaker Change: Tolent to the spray.
Speaker Change: Innovation is mostly due to new futures in mobile displays and to address a degree new TV technology that improved performance.
Speaker Change: and the mobile display.
Speaker Change: This trend was largely supported by new premium smartphones.
Speaker Change: Hire Screen Resolution, and the need to aid additional functions such as fingerprint sensor and cameras.
Speaker Change: Wired with this in power.
Speaker Change: Be quiet new at events must set.
Speaker Change: MLA continues to be introduced into larger size screen, such as tablets and laptop, and that thermal development is underway to produce MLA on G8.6GRS.
Speaker Change: This trend all require high quality photo mask.
Speaker Change: As the technology data in FPD mask, we are well positioned to benefit from these trends and growth.
Frank Lee: Wire near-term demand is being challenged by dynamic market condition. We remain optimistic regarding the long-term market outlook. Our competitive advantage, including strong customer relations, long-term purchase agreement, leading technology, and broad global capacity, positioned us to continue to all-grow the photo-mass industry. Our ability to control costs and manage cash should allow us to continue to invest in profitable growth and deliver shareholder value.
Speaker Change: Why on the other hand, demand is being challenged by dynamic market condition.
Speaker Change: We remain after mystics.
Speaker Change: Rikadina, Dongtham Market, All Look.
Speaker Change: our competitive advantage.
Speaker Change: including strong customer relations, long-term purchase agreement.
Speaker Change: leading technology and broad global capacity.
Speaker Change: Position us to continue to all grow the photo-mass industry.
Speaker Change: Our ability to control course and manage cash, show allow us to continue to invest.
Speaker Change: Improfitable Gross and Diver Shareholder Value.
Eric Rivera: At this moment, I would turn the call to Eric to review our third quarter results and provide fourth quarter guidance. Thank you, Frank. Third quarter revenue of 211 million was down 3% sequentially, with market softness across four ICs and deaf feeding. IC revenue decreased 3% quarter over quarter. High end was lower as improved memory sales were not enough to offset lower demand from logic boundaries in Asia. Compared with the third quarter of 2023, high end improves on strong U.S. sales. High-end growth continues to be a factor for us as we see customers migrating to smaller design nodes, including 22 and 20 nanometers, to take advantage of the cost and performance benefits.
Speaker Change: At this moment, I would turn the court to Eric to reveal our third quarter results and provide fourth quarter guidance.
Eric Rivera: Thank you, Frank.
Eric Rivera: 3rd quarter revenue of 211 million was found 3% sequentially with market softness of transport, IC and deaf feeding.
Speaker Change: I see revenue decrease, 3% quarter of the quarter.
Speaker Change: Hayen was lower as improved memory sales were not enough to offset lower demand from logic boundaries in Asia.
Speaker Change: Compare with the third quarter of 2023, high-end improved at strong US sales.
Speaker Change: Hi and growth continues to be a factor for us as we see customers migrating to smaller design nodes including 22 and 28 nanometers to take advantage of the cost and performance benefits.
Eric Rivera: At the leading edge, our special QB business continues to grow. Year today, high-end IC revenue is up 23 percent. Demonstrating our success in growing this segment of our business. Mainstream once again achieves the question growth as demand improved, particularly in the U.S. This further evaluates our belief that Q1 of this year was the bottom of the mainstream downturn, and we anticipate additional growth going forward. FPD revenue was lower sequentially as well. On a positive note, high-end resumed growth with improved demand from mobile AMOLED displays. Overall, display industry dynamics remain somewhat soft, largely due to the same factors that are impacting semiconductor demand.
Speaker Change: At the leading edge, our special community business continues to grow.
Speaker Change: Today, high-end ICU revenue is up 23% demonstrating our success in growing this segment of our business.
Speaker Change: Mainstream once again achieves sequential growth as the man improved particularly in the US.
Speaker Change: This further validates our belief that Q1 of this year was the bottom of the mainstream downturn and we anticipate additional growth going forward.
Speaker Change: FPD Revenue was lower sequentially as well.
Speaker Change: On a positive note, high end resumed growth with improved demand for mobile ammo displays.
Speaker Change: Overall, display industry dynamics remain somewhat soft, largely due to the same factors that are impacting semiconductor demand.
Eric Rivera: As uncertainty abates, we anticipate achieving above-market growth due to our leading technology, scale, market share, and strong customer relationships. Overall, our growth margin was 35.6 percent. Down slightly, as we would expect, given the software revenue and our level of operating leverage. Blended ASP held up well, as price increases implemented in previous year's whole firm. Our long-term purchase agreements continue to provide protection against downside risks during times of market softness, helping us maintain market share and pricing. Delivery premiums, which were meaningful last year, were no longer material to our results as lead times have normalized. Operating expenses were slightly lower quarter-over-quarter, with operating margins compressing around 110 basis points to 24.7 percent.
Speaker Change: As on certainty of faith, we anticipate achieving a both-market growth due to our leading technology, scale, market share and strong cost of relationships.
Speaker Change: Overall, our gross margin was 35.6%. Down slightly, as we would expect, even the softer revenue, and our level of operating leverage.
Speaker Change: London ASP held up well as price increases implemented in previous years whole firm.
Speaker Change: Our long-term purchase agreements continue to provide protection against downside risk during times of mortgage softness, helping us maintain market share and pricing.
Speaker Change: Delivery premiums, which were meaningful last year, were no longer material to a result as lead times have normalized.
Speaker Change: Operating expenses were slightly lower, core over core, with operating margins compressing around 110 basis points to 24.7%.
Eric Rivera: Despite software revenue through the first nine months of 2024, we have maintained strong margins with the due-to-date operating margins of nearly 26 percent. Below the operating line, and excluding the impact of FX gain, we achieved non-gab net income of 32 million, or 51 cents per share, ahead of last quarter and the same as last year. We generated 75.1 million in operating cash flow, and CAPEX was 24.4 million in the quarter. Year-to-date CAPEX is 87.7 million. We expect full-year CAPEX to be 130 million. 10 million lower than we previously estimated, as some of the CAPEX payments will not occur until next year.
Speaker Change: Despite softer revenue through the first nine months of 2024, we have maintained strong margins with the unidate operating margins of nearly 26%.
Speaker Change: Belot the operating line and excluding the impact of FX gain, we achieved non-gap net income of 32 million, or 51 cents per share, ahead of glass quarter and the same as last year.
Speaker Change: We generated 75.1 million in operating cash flow and CapEx was 24.4 million in the quarter.
Speaker Change: Here today CapEx is 87.7 million.
Speaker Change: We expect full-year capex to be 130 million.
Speaker Change: 10 million lower than we previously estimated as some of the capex payments will not occur until next year.
Eric Rivera: Our CAPEX will support anticipated demand growth, primarily in multi-note IC capacity and capability, and to continue replacing aging tools. All while ensuring we are increasing our return on invested CAPEX. Looking ahead to 2025, we see opportunities to continue investing in growth. Primarily in IC, to ensure we are well-positioned to capitalize on the positive long-term mega trends that are driving photo-mass demand.
Speaker Change: Art CapEx will support anticipated demand for a merrily and multi-note icy capacity and capability, and to continue replacing aging tools. All while ensuring we're increasing our return on the Vest of Capital.
Speaker Change: Looking at hatches in 2025, we see opportunities to continue investing in growth.
Speaker Change: Park Marley and I see to be sure we are well positioned to capitalize on the positive long-term mega trends that are driving photo-master-med.
Eric Rivera: We will provide specific 2025 CAPEX guidance during our Q4 earnings fall in December. We further strengthened our balance sheet during the quarter, increasing the amount of cash, cash equivalence, and short term investments to 606.4 million. Total debt primarily for equipment leases in the U.S. was reduced to 20.1 million. With our strong balance sheet and demonstrated ability to generate cash, we are increasing the size of our share repurchase program to 100 million and plan to restart activity under the program soon. We believe this is a good use of cash and will add value to our shareholders.
Speaker Change: We will provide specific $2,025 CapEx guidance during our Q4 earnings following December.
Speaker Change: We further strengthened our balance sheet during the quarter, increasing the amount of cash, cash equivalents, and short-term investments to 606.4 million.
Speaker Change: Total debt primarily for equipment releases in the U.S. was reduced to $2.1 million.
Speaker Change: with our strong balance sheet and demonstrated ability to generate cash. We are increasing the size of our shared purchase program to 100 million and clients to restart activity under the program soon.
Speaker Change: We believe this is a good use of cash and we'll add a value to our shareholders.
Eric Rivera: Before providing guidance, I'll remind you that demand for products is inherently uneven and difficult to predict with limited visibility and a typical backlog of one to three weeks. In addition, ASPs for advanced assets are high, meaning a relatively low number of high-end orders can have a significant impact on our quarterly revenue and earnings. With those qualifications, we expect fourth quarter revenue to be in the range of 213 to 221 million. While we're seeing good order rates at the beginning of the fourth quarter, lingering macro uncertainty is keeping us cautious. Based on those revenue expectations and our current operating model, we estimate non-GAAP earnings per share for the fourth quarter to be in the range of 48 to 54 cents per diluted share.
Speaker Change: Before providing guidance, I'll remind you that demand for products is inherently uneven and difficult to predict, with limited visibility and typical backlog of once a three weeks.
Speaker Change: In addition, ASPs for advanced mass sets are high, meaning in relatively low number of high-end orders can have a significant impact on our quarterly revenue and earnings.
Speaker Change: With those qualifications, we expect four foot of revenue to be in the range of 213 to 221 million.
Speaker Change: Well, we're seeing good order race at the beginning of the fourth quarter, lingering macro uncertainty is keeping us cautious.
Speaker Change: Based on those revenue expectations and our current operating model, we estimate non-gap earnings per share for the fourth quarter to be in the range of 48 to 54 cents per dilute share.
Eric Rivera: This equates to an operating margin between 25 and 27 percent as we continue to keep costs under control and maximize profitability. We've delivered sequentially higher adjusted EPS in the third quarter, even as demand remains soft. This was achieved by keeping a tight control in cost. We also continue to generate strong cash flow, keeping our balance strong and enabling us to invest in growth. As demand on our markets improves, we are in a great position to grow revenue and expand margins.
Speaker Change: This equates to an operating margin between 25% and 27% as we continue to keep cost under control and maximize profitability.
Speaker Change: We delivered sequentially higher adjusted EPS in the third quarter, even as demand remains soft. This was achieved by keeping a tight control cost.
Speaker Change: He also continues to journey strong cash flow, keeping our balance is strong and enabling us to
Speaker Change: As the man on our markets improves, we are in a great position to grow revenue and expand margins.
Unknown Executive: I'll now turn the call over to the operator for your questions. Thank you.
Speaker Change: I'll now turn the call over to the operator for your questions.
Unknown Executive: As a reminder to ask a question, please press Store 11 on your telephone and wait for your name to be announced. To withdraw the question, please press store 11 again.
Speaker Change: Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw the question, please press star 11 again.
Tom Difflee: And our first question will come from Tom Difflee with DA Davidson. Your line is now open.
Speaker Change: and our first question will come from Tom Diffley with DA Davidson. Your line is now open.
Tom Difflee: Yes, good morning, and thank you for taking a few questions. Eric, I was curious when we go through the results and how earnings kind of held in there despite the weaker revenue. It looks like a combination of tax and the non-controlling interest for the big drivers there. Maybe you talked about each one on tax.
Speaker Change: Yes, good morning and thank you for taking a few questions.
Tom Diffley: Eric, I was curious, you know, when we go through the results.
Tom Diffley: and how earnings kind of held in there despite the weaker revenue.
Speaker Change: It looks like a combination of tax and the non-controlling interest for the big drivers there.
Eric Rivera: Why did it fall as much as it did, and on non-controlling, do the China percentage fall quite a bit? And if that's the case, is the profitability in China not where you want it to be quite yet? Thanks.
Speaker Change: I think we talked about each wine on tax, you know, why did it fall as much as it did? And then on non-controlling, you know, to the China percentage fall, quite a bit, and if that's the case, is the profitability and China not where you want it to be quite yet. Thanks.
Eric Rivera: Sure, Tom. Thanks for the question. So, from a tax perspective, what effective tax was the jurisdictional mix of earnings? Similar to the non-controlling interest. are not controlling. Our joint ventures didn't perform as well as they, you know, we would have liked them to perform, so as a result, there was less income attributed to them. However, that was offset by some of our wholly owned subsidiaries. The benefit from additional EPX gains.
Speaker Change: I'm sure it's on, thanks for the question, so from a tax perspective, what effected task was the jurisdiction of mix of earnings.
Speaker Change: Similar to the non-controlling interest.
Speaker Change: are not controlling our drone ventures, didn't perform as well, they would have liked them to perform as a result.
Speaker Change: there was less income attributed to them. However, that was offset by some of our Holy Old subsidiaries. So, as our Holy Old subsidiaries, as the mix between earnings between our Holy Old subsidiaries and our joint ventures, you know.
Speaker Change: goes more towards our whole own subsidiaries.
Sheryl: Sheryl, there's a four-chronics egg benefit from an additional EPS games.
Eric Rivera: So maybe to summarize, when you do projects in North America or outside of Asia, the tax rates are better and the profitability is better. So even within Asia, there's certain jurisdictions that just have different tax rates. So, as that jurisdictional mix changes, as you have more income and lower tax jurisdictions, you benefit from a tax perspective.
Sheryl: So, maybe to summarize, when you do projects in North America or outside of Asia, the tax rates are better and the profitability is better.
Sheryl: So, even with the nature, there are jurisdictions that have different tax rates.
Speaker Change: So, as that jurisdictional mixed changes, as you have more income and lower tax jurisdiction.
Tom Difflee: Okay, great. And a couple more here.
Speaker Change: who you've done if you're from a tax perspective.
Tom Difflee: So I noticed that SG&A was up quite a bit quarter of a quarter, despite the revenue dip; maybe a little color there.
Speaker Change: Okay, great. And a couple more here. So, notice that SGA was up quite a bit, square of a quarter of a quarter, despite the revenue dip may be a little color there.
Eric Rivera: Sure. SG&A was primarily increased due to professional services fees that were incurred during the quarter.
Speaker Change: Sure, S&A was a primarily increased student professional services fees that were incurred during the quarter.
Tom Difflee: Okay, I guess that leads me to my next question.
Tom Difflee: Any update on the General Council dismissal? And it was certainly no; there was really no impact to our financial results, most significant impact, I should say.
Speaker Change: Okay, I guess that leads me to my next question, and you have to add on the general counsel, dismissal.
Speaker Change: and I was going back outside of the building. There was certainly no way back to our financial results. We'll see nothing going back, I should say.
Eric Rivera: No update further than that, though, at this time.
Tom Difflee: Okay, and then just one broad question. When you look at the margin structure on the mature, the mainstream business and how over the last few years, it's ramped nicely. You kind of peeked in maybe a year ago. Is the mainstream business still healthy from a price point of view, or has the softness in the overall transaction run rate?
Speaker Change: know up the further than that though at this time.
Speaker Change: Okay, and then just one broad question, when you look at the margin structure on the mature of the mainstream business and how, over the last few years, it's rapidly, nicely, you kind of peeked in, maybe a year ago, is the mainstream business still healthy from a price point of view, or has the softness in the,
Tom Difflee: You know, put it back into its old kind of sequentially declining on an annual basis.
Speaker Change: and the overall transaction run rate, you know, put it back into this old kind of sequentially declining on an annual basis.
Frank Lee: Tom, this is Frank. Our mainstream business actually is very stable because, as we report several times in the call, in the mainstream manufacturer inside, there are many end or life tools. So, with that, we have to repress the equipment to add a capacity. But in general, the capacity for the mainstream segment is not increasing. So that enable us to keep the stable price.
Speaker Change: Tom, this is Frank. Our mainstream business actually is very stable, because as we report several times in the core, in the mainstream, manufacturing side, there are many end-of-life tools.
Tom Diffley: with that we have to repress the equipment to add capacity, but in general the capacity for mainstream segment is not increasing, so that enables us to keep the stable price.
Tom Difflee: Okay, great.
Tom Difflee: And then I don't know if Chris is on the call, but I do have a kind of technology question. Yeah, yeah, I'm here.
Speaker Change: Okay great and then I don't know if Chris is on the call but I do have a kind of technology question.
Christopher Progler: Oh, hey Chris. So I guess two things. First, are you seeing any, or what do you think the longer-term impact is, if any, of Apple canceling this micro display project. And then how do you see OLED ramping into flat panels of a larger size over time? Yeah, so the micro display, we don't really see much impact micro display. We didn't have it marked up as a big growth driver for photo masks. So, to the extent, how many like Apple decide not to commit to micro display does not really change our outlook on the FPD market.
Chris Progler: Gap, yeah, I'm here, come on
Chris Progler: Hello, hey Chris. So I guess two things first, are you seeing any, are what do you think the longer-term impact is, if any of Apple cancelling is micro display project, and then how do you see OLED ramping into flat panels of a larger size over time?
Speaker Change: Yeah, so it micro display, we don't really see much impact, you know, micro display, we didn't have it marked up as a big growth driver for photo mask, so to the extent companies like Apple decide not to commit to micro display, it has not really changed our outlook on.
Christopher Progler: As far as the OLED, definitely we see the Gen 8.6 form factor starting to go into production next year, we believe. One of the large panel makers already has that fab, and we're talking to them about shipping initial masks into that. We do think we'll be in, you know, a good POR position for those high-form factor masks. And, you know, the ASPs for those because they're tough masks to make, AMOLED at Gen 8.6, much harder, much more complex than LCD. We'll see really good ASPs on those products. Okay, and I assume that you have a bit of a technology advantage over some of your newer peers in that space as well.
Speaker Change: on the FPT market. As far as the OLED, definitely we see the Gen A.06 form factor starting to go into production next year. We believe.
Speaker Change: One of the large panel makers already has that fab, and we're talking to them about shipping initial masks into the bag. We do think we'll be in the good POR position for those high phone factor masks.
Speaker Change: and the ASPs for those because they're tough masks to make, AMOLED at Gen 8.6, much harder, much more complex than LCD.
Speaker Change: We, you know, we'll see really good ASPs on those products.
Speaker Change: Okay, and I assume that you have a bit of a technology advantage over some of your newer peers in that space as well.
Christopher Progler: Yeah, for sure on FPD, we think we have a pretty strong technology lead. The other thing we see on AMOLED is a lot of take up of so-called advanced masks, things that, you know, not to use jargon or phase-shifting masks, and the types of technology that really helped IC evolve through Moore's Law. We're seeing the adoption rate on those for flat panel increased quarter over quarter. So a really good take up on our higher end masks to get more performance on panel. So we think our tech leadership here is going to be a big advantage.
Speaker Change: Yeah, for sure on FPV, we think we have pretty strong technology. We eat the other thing we see on our animal is a lot of take-up moves.
Speaker Change: So-called advanced masks, things that, you know, not to use jargon or face-shifting masks and the types of technology that really helped I see evolved through Moore's Law. We're seeing the adoption rate on those four flat panel increase quarter over-card quarter. So really good take up.
Speaker Change: on our higher-end masks to get more performance on panel.
Tom Difflee: Okay, well thank you, Eric, Frank, and Chris. Appreciate your time today. Thank you.
Speaker Change: So, we think you have a technical leadership here, it's going to be a big advantage.
Speaker Change: Okay, well thank you Eric Frank and Chris appreciate your time today. Thank you. Thank you.
Unknown Executive: Okay, I show no further questions in the queue at this time.
Frank Lee: I would now like to turn the call back over to Frank Lee for closing comments. Thank you. Thank you for joining us this morning. Why a demand has been solved through the first nine months of 2024. We have done a great, a good job of maintaining margins and generating strong cash. I'm proud of the way we have performed. Looking longer-term, there are several mega trends that show support market growth. As the DTM photo mask producers, we are well-positioned to grow as demand improves, creating value for our customer, employee, and shareholders. I look forward to updating you on our progress.
Speaker Change: Okay? I show no further questions in the queue at this time. I would now like to turn the call back over to Frank Lee for closing comment.
Frank Lee: Thank you, thank you for joining us this morning, while the man has been solved through the first 9 months of 2024, we have done a great job of maintaining margins and generating strong cash.
Speaker Change: and Pearl of the Way we have performed. Looking longer-term, they are several make-up trends that show support market growth.
Speaker Change: As the DTN photo mask producers, we are willing to grow as demand improves.
Speaker Change: Creating value for our customer, employee, and shareholders.
Unknown Executive: Thank you.
Speaker Change: I look forward to seeing you on our progress. Thank you.
Unknown Executive: Ladies and gentlemen, that concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line. Thank you.
Speaker Change: Ladies and gentlemen, that concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line. Thank you.
Unknown Executive: School Year 2024 Earnings 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. To ask a question during the session, you would need press star 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.
Unknown Executive: Please be advised that today's conference is being recorded on Thursday, August 29, 2024.
Eric Rivera: I would like now to turn the conference over to Eric Rivera, Chief Financial Officer. Please go ahead. Thank you, Michelle.
Frank Lee: Good morning, everyone. Welcome to our review of Photronics, fiscal 2024 third quarter results.
Frank Lee: Joining me this morning are frankly our Chief Executive Officer and Chris Progler, our Chief Technology Officer. The press release we issued earlier this morning, together with the presentation material that accompanies our remarks are available on the investor relations sections of our webpage. Comments made by any participants on today's calls may include four looking statements that include such words as anticipate, believe, estimate, expect, forecast, and interview. These four looking statements are based upon a number of risks on certainties and other factors that are difficult to predict.
Frank Lee: Although we believe that the expectations reflected in the four looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We're under no duty to update any of the four looking statements after the date of the presentation to conform these statements to actual results.
Frank Lee: During the course of our discussion, we will refer to certain non-gap financial metrics. These numbers are useful for analysts, investors, and management to evaluate ongoing performance. A reconciliation of these metrics to gap financial results is provided in our presentation materials.
Frank Lee: At this time, I'll turn the call over to Frank.
Frank Lee: Thank you, Eric and good morning, everyone. Third quarter says, can be lighter than we expected, due to soft demand from Azure Foundry as a strong order rate at the beginning of the quarter, lost momentum. Lingering macro uncertainty and customer concern are elevated inventory, cause some to limit or differ, reducing new designs. As a result, photo-mass demand slow, resulting in lower sales for both ICNF and FPT. Higher logic must orders decrease while our memory business improves in the quarter.
Frank Lee: Higher and FPT improves, due to demand for MRI masks used for mobile displays as companies prepare for model release in a recovering smartphone market. Compare with the second quarter, growth margin decreased due to the impact of lower memory. Operation expenses were slightly lower than the second quarter. EPS was 55 cents. After adjusting for an FX scan, LungGap EPS was 51 cents higher than last quarter and the same as last year. We continue to generate strong operation cash, giving us added flexibility to invest in growth while also maintaining a strong balance sheet.
Frank Lee: As a result, we are announcing an increase of our existing share repurchase program to $100 million. Eric will share details in few minutes, but we believe this is the right time to restart our share repurchase activity and enhance our capital allocation framework. Based on our up-to-measant in a long-range photo mass market, we are also evaluating several goals options including strategic expansion, partner ships, and other possibilities in US, Europe and Asia. We are maintaining flexibility to act quickly in support of our global customer and partners while remaining disciplined to ensure our investment meet financial objectives.
Frank Lee: I'm very proud and very pleased with the way our team has performed during the quarter. They have taken care of the customers while managing costs and maximizing cash to maintain financial strengths. We have a great team at 4 Chinese and they are navigating the challenges where.
Frank Lee: Turning to the market, I would like to comment on the trend we have seen. Photo mass demand is driven mostly by design activity. Several long-term trends such as AI, mobile computing, and increased IC content in automotive, energy, and consumer applications drive new designs in both leading age and legacy technology nodes, all required in new photo masks. As the global leader in IC mask units, we see a high level of new product qualification across the node spectrum, each with projected revenue opportunities.
Frank Lee: It is all praywares to our marginal strengths and is a positive long-term trend for our business. In addition to new designs, photo mass demand is driven by an increase in wafer manufacturing capacity. New fab are being built globally to meet the growth in applications such as data centers that are needed to support AI, and to support an increase in supply chain rich in automation. This is a positive long-term trend for photo-mass demand.
Frank Lee: Due to our broad geographical footprint, capacity and suite of technologies, we are able to provide all of our customers' photo-mass needs. We supply nearly all leading batches with strong market share, especially in Taiwan, China and Korea.
Frank Lee: In US and Europe, we are seeing the initial signs of growing demand for regionalization. Turning to display, innovation is mostly due to new futures in mobile displays and to a lesser-degree new TV technology that improves performance. On a mobile display, this trend was largely supported by new premium smartphones, higher-screen resolution, and the need to add additional functions, such as fingerprint sensor and cameras, while reducing power, required new advanced mass sets. AMOLED continues to be introduced into larger-sized screens, such as tablets and laptops, and the development is underway to produce AMOLED on G8.6 glass. These trends all require high-quality photo-mass. As the technology leader in LCD masks, we are well positioned to benefit from these trends and growth.
Frank Lee: Wire near-term demand is being challenged by dynamic market condition. We remain optimistic regarding the long-term market outlook. Our competitive advantage, including strong customer relations, long-term purchase agreement, leading technology, and broad global capacity, positioned us to continue to all-grow the photo-mass industry. Our ability to control costs and manage cash should allow us to continue to invest in profitable growth and deliver shareholder value.
Eric Rivera: At this moment, I would turn the call to Eric to review our third quarter results and provide fourth quarter guidance. Thank you, Frank. Third quarter revenue of 211 million was down 3% sequentially with market softness across four ICs and deaf feeding. IC revenue decreased 3% quarter over quarter. High end was lower as improved memory sales were not enough to offset lower demand from logic boundaries in Asia. Compared with the third quarter of 2023, high end improves on strong US sales.
Eric Rivera: High-end growth continues to be a factor for us as we see customers migrating to smaller design nodes, including 22 and 20 nanometers to take advantage of the cost and performance benefits. At the leading edge, our special QB business continues to grow. Year today, high-end IC revenue is up 23 percent. Demonstrating our success in growing this segment of our business. Mainstream once again achieves the question growth as demand improved, particularly in the U.S.
Eric Rivera: This further evaluates our belief that Q1 of this year was the bottom of the mainstream downturn and we anticipate additional growth going forward. FPD revenue was lower sequentially as well. On a positive note, high-end resumed growth with improved demand from mobile AMOLED displays. Overall, display industry dynamics remain somewhat soft, largely due to the same factors that are impacting semiconductor demand. As uncertainty abates, we anticipate achieving above market growth due to our leading technology, scale, market share and strong customer relationships.
Eric Rivera: Overall, our growth margin was 35.6 percent. Down slightly, as we would expect, given the software revenue and our level of operating leverage, blended ASP held up well as price increases implemented in previous year's whole firm. Our long-term purchase agreements continue to provide protection against downside risks during times of market softness, helping us maintain market share and pricing. Delivery premiums, which were meaningful last year, were no longer material to our results, as lead times have normalized.
Eric Rivera: Operating expenses were slightly lower quarter-over-quarter, with operating margins compressing around 110 basis points to 24.7 percent. Despite software revenue through the first nine months of 2024, we have maintained strong margins with the due-to-date operating margins of nearly 26 percent. Below the operating line, and excluding the impact of FX gain, we achieved non-gab net income of 32 million, or 51 cents per share, ahead of last quarter and the same as last year.
Eric Rivera: We generated 75.1 million in operating cash flow, and CAPEX was 24.4 million in the quarter. Year-to-date CAPEX is 87.7 million. We expect full-year CAPEX to be 130 million. 10 million lower than we previously estimated, as some of the CAPEX payments will not occur until next year. Our CAPEX will support anticipated demand growth, primarily in multi-note IC capacity and capability, and to continue replacing aging tools. All while ensuring we are increasing our return on invested CAPEX. Looking ahead to 2025, we see opportunities to continue investing in growth. Primarily in IC, to ensure we are well-positioned to capitalize on the positive long-term mega trends that are driving photo-mass demand.
Eric Rivera: We will provide specific 2025 CAPEX guidance during our Q4 earnings fall in December. We further strengthened our balance sheet during the quarter, increasing the amount of cash, cash equivalence and short term investments to 606.4 million. Total debt primarily for equipment leases in the U.S, was reduced to 20.1 million. With our strong balance sheet and demonstrated ability to generate cash, we are increasing the size of our share repurchase program to 100 million and plan to restart activity under the program soon. We believe this is a good use of cash and will add a value to our shareholders.
Eric Rivera: Before providing guidance, I'll remind you that demand for products is inherently uneven and difficult to predict with limited visibility and typical backlog of once or three weeks. In addition, ASPs for advanced assets are high, meaning a relatively low number of high end orders can have a significant impact on our quarterly revenue and earnings. With those qualifications, we expect fourth quarter revenue to be in the range of 213 to 221 million. While we're seeing good order rates at the beginning of the fourth quarter, lingering macro uncertainty is keeping us cautious.
Eric Rivera: Based on those revenue expectations and our current operating model, we estimate non-gap earnings per share for the fourth quarter to be in the range of 48 to 54 cents per diluted share. This equates to an operating margin between 25 and 27 percent as we continue to keep costs under control and maximize profitability. We've delivered sequentially higher adjusted EPS in the third quarter, even as demand remains soft. This was achieved by keeping a tight control in cost. We also continue to generate strong cash flow, keeping our balance strong and enabling us to invest in growth. As demand on our markets improves, we are in a great position to grow revenue and expand margins.
Unknown Executive: I'll now turn the call over to the operator for your questions. Thank you. As a reminder to ask a question, please press store 11 on your telephone and wait for your name to be announced. To withdraw the question, please press store 11 again.
Eric Rivera: And our first question will come from Tom Difflee with DA Davidson. Your line is now open. Yes, good morning and thank you for taking a few questions. Eric, I was curious when we go through the results and how earnings kind of held in there despite the weaker revenue, it looks like a combination of tax and the non-controlling interest for the big drivers there. Maybe you talked about each one on tax. Why did it fall as much as it did and on non-controlling, do the China percentage fall quite a bit?
Eric Rivera: And if that's the case, is the profitability in China not where you want it to be quite yet? Thanks. Sure, Tom. Thanks for the question. So from a tax perspective, what effective tax was the jurisdictional mix of earnings? Similar to the non-controlling interest, are not controlling, our joint ventures didn't perform as well as they, you know, we would have liked them to perform so as a result there was less income attributed to them.
Eric Rivera: However, that was offset by some of our wholly own subsidiaries. The benefit from additional EPX gains. So maybe to summarize, when you do projects in North America or outside of Asia, the tax rates are better and the profitability is better. So even within Asia, there's certain jurisdictions that just have different tax rates. So as that jurisdictional mix changes, as you have more income and lower tax jurisdictions, you benefit from a tax perspective.
Eric Rivera: Okay, great. And a couple more here. So I noticed that SG&A was up quite a bit quarter of a quarter despite the revenue dip, maybe a little color there. Sure. SG&A was primarily increased due to professional services fees that were incurred during the quarter. Okay, I guess that leads me to my next question. Any update on the general council dismissal. And it was certainly no, there was really no impact to our financial results, most significant impact, I should say. No update further than that though at this time.
Tom Difflee: Okay, and then just one broad question. When you look at the margin structure on the mature, the mainstream business and how over the last few years, it's ramped nicely. You kind of peeked in maybe a year ago is the mainstream business still healthy from a price point of view or has the softness in the in the overall transaction run rate. You know, put it back into its old kind of sequentially declining on an annual basis.
Frank Lee: Tom, this is Frank. Our mainstream business actually is very stable because as we report several times in the call in the mainstream manufacturer inside, there are many end or life tools. So with that, we have to repress the equipment to add a capacity. But in general, the capacity for mainstream segment is not increasing. So that enable us to keep the stable price.
Tom Difflee: Okay, great.
Christopher Progler: And then I don't know if Chris is on the call, but I do have a kind of technology question. Yeah, yeah, I'm here. Oh, hey Chris.
Christopher Progler: So I guess two things. First, are you seeing any or what do you think the longer term impact is if any of Apple, canceling this micro display project. And then how do you see OLED ramping into flat panels of a larger size over time? Yeah, so the micro display, we don't really see much impact micro display. We didn't have it marked up as a big growth driver for photo masks. So to the extent, how many like Apple decide not to commit to micro display does not really change our outlook on the FPD market.
Christopher Progler: As far as the OLED, definitely we see the Gen 8.6 form factor starting to go into production next year, we believe. One of the large panel makers already has that fab, and we're talking to them about shipping initial masks into that. We do think we'll be in, you know, a good POR position for those high-form factor masks. And, you know, the ASPs for those because they're tough masks to make, AMOLED at Gen 8.6, much harder, much more complex than LCD. We'll see really good ASPs on those products.
Christopher Progler: Okay, and I assume that you have a bit of a technology advantage over some of your newer peers in that space as well. Yeah, for sure on FPD, we think we have a pretty strong technology lead. The other thing we see on AMOLED is a lot of take up of so-called advanced masks, things that, you know, not to use jargon or phase-shifting masks, and the types of technology that really helped IC evolve through Moore's Law.
Christopher Progler: We're seeing the adoption rate on those for flat panel increased quarter over quarter. So a really good take up on our higher end masks to get more performance on panel. So we think our tech leadership here is going to be a big advantage.
Tom Difflee: Okay, well thank you, Eric, Frank and Chris. Appreciate your time today. Thank you.
Unknown Executive: Okay, I show no further questions in the queue at this time.
Frank Lee: I would now like to turn the call back over to Frank Lee for closing comments. Thank you. Thank you for joining us this morning.
Frank Lee: Why a demand has been solved through the first nine months of 2024. We have done a great, a good job of maintaining margins and generating strong cash. I'm proud of the way we have performed. Looking longer-term, there are several mega trends that show support market growth. As the DTM photo mask producers, we are a well-positioned to grow as demand improves, creating value for our customer, employ and shareholders. I look forward to updating you on our progress. Thank you.
Unknown Executive: Ladies and gentlemen, that concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line. Thank you.