Photronics Inc (NASDAQ:PLAB) Q1 2023 Earnings Name dated Feb. 22, 2023.
Company Individuals:
Richelle Burr — Chief Administrative Officer
Frank Lee — Chief Government Officer
John Jordan — Chief Monetary Officer
Chris Progler — Chief Expertise Officer
Analysts:
Thomas Diffely — D.A. Davidson — Analyst
Presentation:
Operator
Good day and thanks for standing by. Welcome to the Photronics First Quarter Fiscal 2023 earnings name. [Operator Instructions]. Please be suggested that as we speak’s convention is being recorded. I might now like to show the convention over to Richelle Burr, Chief Administrative Officer.
Richelle Burr — Chief Administrative Officer
Thanks. Ryska. Good morning, everybody. Welcome to our evaluate of Photronics fiscal 2023 first-quarter outcomes. Becoming a member of me this morning are Frank Lee, our Chief Government Officer; John Jordan, our Chief Monetary Officer; Chris Progler, our Chief Expertise Officer; and Eric Rivera, our Chief Accounting Officer and Company Controller. The press launch we issued on Monday, along with the presentation materials that accompanies our remarks, can be found on the Investor Relations part of our webpage. Feedback made by any individuals on as we speak’s name could embody forward-looking statements that embody such phrases as anticipate, imagine, estimate, count on, forecast or in our view. These forward-looking statements are primarily based upon a variety of dangers, uncertainties and different components which are troublesome to foretell. Precise outcomes could differ materially from these expressed or implied and we assume no obligation to replace any forward-looking data.
Through the course of our dialogue, we are going to discuss with sure non-GAAP monetary metrics. These numbers are helpful for analysts, traders and administration to guage ongoing efficiency. A reconciliation of those metrics to GAAP monetary outcomes is offered in our presentation materials. Right now. I want to flip the decision over to Frank.
Frank Lee — Chief Government Officer
Thanks, Richelle. And good morning everybody. I’m happy to report we achieved income of $211.1 million in Q1, which exceeded our expectations. This was towards backdrop macro challenges and unsure business situations exhibiting that Photronics was in a position to navigate a troublesome setting very effectively. Certainly, the IC photomask market has been combined, with robust demand in sure nodes and struggling demand in others.
On the constructive facet, we had obtained robust order stream from Asian foundries for mid vary nodes from 65 nanometer to 45 nanometer, primarily for good automotive, LED driver, automotive, picture sensor, IoT, and different particular functions.
Our buyer long-term buy settlement that we enter over previous couple of years profit us by preserving market share and offering a superb mixture of product demand Serving to us keep income. This settlement have helped us higher plan for capital reinvestment and deal with interval of slowing business demand. On the FPD facet. our Q1 fab utilization remained at a high-level, with smartphone show exhibiting specific developments for China panel makers. This present a significant contribution to our FPD enterprise development and was in keeping with a robust demand for our mid vary IC show driver photomask heliograph. Gross margin and operation margin have been barely softer in This autumn, Asia. Asia keep a robust stage by means of steady cost-control administration and worth technique. John will focus on our monetary matrix in additional particulars later. Trying-forward to Q2 outlook, primarily based on present order developments and ongoing enter from our clients, we anticipate demand to stay secure in Q2, leading to steerage that’s roughly in step with our first-quarter operation outcomes. Whereas demand uncertainty past Q2 is larger than common, we proceed to work carefully with our clients to grasp their demand and able to assist their enterprise. In lots of instances, photomask demand can stay regular even throughout business downturn as photomask demand is design-driven and now always-on the identical cycle as wafer begins or show manufacturing. Longer-term, we imagine photomasks are a terrific place to be within the semiconductor and FPD provide chain. As design-heavy future and nice outsourcing for our captive march up owing to rising photomask demand. Furthermore, international [Indecipherable] regionalization of IC provide might be a constructive long-term driver of photomask as these new fabs require masks. We imagine our international presence, development expertise portfolio and the shut buyer relationship place us to capitalize on this market trajectory over the long-term. We’ve made a superb begin in 2023, which might be a problem a 12 months. I’ve full confidence in Photronics international crew And we are going to proceed to assist our clients by navigating by means of dynamics as they evolve and by executing with world class efficiency in functionality, value, and supply. Earlier than turning the decision over to John, I want to supply a number of feedback on our continued evolution of export management legal guidelines. Japan and Netherlands lately agreed to tighten restrictions on export of chip manufacturing expertise to China. This may increasingly create extra threat for us as we depend on some Japanese agency for materials to us and repair essential to manufacture photomask. We regularly evaluate our import and export apply to make sure compliance with regulatory necessities and work carefully with our companions, distributors and suppliers to create manufacturers that finest serve our clients. The brand new restriction didn’t have a cloth influence on our first-quarter outcomes. We proceed to evaluate the restriction and what influence that will have on our future operations. With that, I flip the decision to John.
John Jordan — Chief Monetary Officer
Thanks, Frank. Good morning, everybody. Income elevated barely within the first-quarter as each IC and FPD have been up considerably from the fourth-quarter and efficiently offset typical seasonal developments, significantly for high-end applied sciences. Design exercise continued moderately sturdy. Our business groups have accomplished a terrific job working with clients to grasp their expertise roadmap and win quarters. And our international crew executed effectively and delivered. IC income was $156.6 million, up 0.2% sequentially. A rise in high-end demand significantly in Asia offset restricted softness in mainstream. The provision demand imbalance continues to assist a positive pricing setting. And for essentially the most half, we’re in a position to keep ASP pricing, unique of premiums established during the last two years.
FPD income improved 1% sequentially to $54.5 million. Once more development in high-end income greater than offset decrease mainstream demand. Excessive-end development got here from improved G10.5 plus demand and continued energy in cellular shows. Many occasions, the manufacturing capability devoted to robust demand for high-end masks can result in decreased manufacturing of mainstream masks. Gross and working margins have been about two proportion factors lower than fourth-quarter margins because of much less favorable combine and considerably decrease expediting premiums that clients pay to speed up deliveries. Though the income improve was in high-end, each IC and FPD, not all high-end enterprise is created equal. Distinction in combine together with nature of the product, product pricing and margins and placement of producer, particularly associated to reminiscence, all impact working margin consequence.
Working bills have been barely elevated sequentially on larger individuals prices. First-quarter SG&A prices are sometimes larger than fourth-quarter because of larger employer taxes and health-care prices. SG&A elevated from first-quarter final 12 months because of general larger salaries and wages, pushed by labor market situations and health-care prices. Nonetheless, working bills remained effectively beneath the ten% of gross sales implied in our goal mannequin. Sustaining a decent grip on bills is a part of our DNA, so to talk.
Non-operating loss within the quarter of $14.4 million resulted primarily from the unrealized loss from month-end re-measurement of U.S. greenback denominated steadiness sheet objects into the native purposeful currencies in our international operations. The re-measurement train produces an unrealized noncash, accounting for variations in forex relationships, which may end up in both a acquire or loss every quarter. These non-operating objects have been usually favorable during the last two years. Because of the diploma of variation within the fourth-quarter and first-quarter quantities, we offered a non-GAAP presentation to exhibit that working outcomes excluding the FX loss have been in step with expectations.
The earnings tax provision of $12.6 million and noncontrolling curiosity expense of $15 million resulted in internet earnings of $14 million and diluted EPS of $0.23 on a GAAP foundation. On an adjusted foundation, internet earnings was $24.4 million and diluted EPS was $0.40. Final quarter, non-GAAP internet earnings and EPS have been $31.2 million and $0.51 respectively. The analogous internet earnings and EPS final 12 months have been $14.2 million and $0.32.
Money-flow generated from operations was $28 million within the first-quarter. We invested $31 million in capital expenditures and obtained a $1 million in authorities incentives. For full-year 2023, our capex forecast stays at roughly $130 million primarily for elevated high-end in mainstream IC capability. Our money steadiness together with short-term investments was $374 million on the finish of the quarter or $340 million internet money after $34 million in debt.
We imagine now we have ample liquidity for our investments in development and for resilience towards uncertainties we could face in 2023. Earlier than I present steerage, I’ll remind you that our visibility is at all times restricted as our backlog is often just one to 3 weeks and demand for a few of our merchandise Is inherently uneven and troublesome to foretell. Moreover, the ASPs for high-end masks units are excessive. And as this phase of the enterprise grows, a comparatively low variety of high-end orders can have a big influence on our quarterly income and earnings. Given these caveats, we count on second-quarter income to be within the vary of $205 million to $215 million. We anticipate that the present income stage might be sustained within the second-quarter and the power to keep up revenues at this stage ratifies our perception that the business’s cyclical part will not be essentially mirrored in demand for photomasks. Based mostly on these income expectations in our present working mannequin, we estimate earnings per share for the present quarter, the second-quarter, to be within the vary of $0.38 to $0.48 per diluted share. We’ve made a terrific begin to 2023. Photomask demand has been secure and our business and working groups are performing effectively. Regardless of near-term uncertainty, we stay optimistic for the constructive long-term view of accelerating photomask demand. We imagine we’re the market-leader and we plan to proceed to develop and punctiliously handle margins to maintain shifting towards attainment of our long-term monetary targets. I’ll now flip the decision over to the operator for questions.
Questions and Solutions:
Operator
Thanks. [Operator Instructions]. Our first query comes from the road of Thomas Diffely of DA Davidson. Your line is now open.
Thomas Diffely — D.A. Davidson — Analyst
Sure, good morning and thanks for taking my name, my questions. So, John, I’m curious, while you have a look at the for second-quarter steerage, you talked about it being secure quarter-over quarter. Why do you assume you’re not seeing the standard put up Chinese language New Yr ramp in demand and is it simply being offset by another shifting components.
John Jordan — Chief Monetary Officer
I feel I’ll defer that one to Frank who has way more authority on Chinese language New Yr and the order charges.
Frank Lee — Chief Government Officer
Sometimes, a whole lot of paper [Phonetic] occurs earlier than Christmas or Chinese language New Yr. This 12 months, it’s barely totally different due to the general business setting. So, we do see some mainstream paper begin to improve. However, on larger facet, we haven’t seen recuperate — robust restoration but. However in response to our enter from our buyer and from our gross sales, we imagine the paper could begin to occur later within the quarter, however we have to proceed to observe state of affairs.
Thomas Diffely — D.A. Davidson — Analyst
Okay, thanks. After which in your ready feedback, you talked about rising nationalism. What areas particularly are you there? And when do you assume the capability might be in place to profit PLAB and form of your ongoing enterprise?
Chris Progler — Chief Expertise Officer
Hello Tom, that is Chris. All of the areas have packages to develop their home provide chains for semiconductors. Each main producing area has that. So we’re all of them. U.S. and Europe particularly appear to be wanting to put in important quantities of recent capability. So. we’re monitoring that. We’re assembly with clients. We’re additionally a possibility to use for incentives ourselves to develop our networks there. So far as when which may materialize, I feel you must have a look at in all probability a three-year — two to three-year horizon at minimal, in all probability 4 to 5 years to essentially obtain the total entitlement of these form of authorities initiated program.
So we’re seeing a bit of little bit of it frankly already the place some corporations try to get forward of the curve by increasing capability. However I feel you must take into consideration in all probability a three-year horizon earlier than it actually takes maintain.
Thomas Diffely — D.A. Davidson — Analyst
Okay, thanks Chris. After which Chris, observe up on this query. Perhaps a bit of bit extra on the Japanese expertise restrictions, is it too early to inform, however what nodes does that embody and what’s your proportion of enterprise of these probably superior nodes?
Chris Progler — Chief Expertise Officer
I feel for essentially the most superior nodes, the EUV particularly, I don’t see that having a big influence. Our EUV enterprise is definitely rising Yr-over-Yr. We count on it to occur once more this 12 months, however it’s principally to assist OEMs, tools producers, R&D packages, piloting, that form of factor. So we don’t have a giant publicity to manufacturing impacts from EUV, though it’s rising for us.
The mid vary nodes in fact as we speak I feel as the scanner corporations are nonetheless promoting mid vary scanner. That is actually Deep UV 248 and dry ARF at immersion into all areas world wide. If that was severely curtailed, that has a significant influence on future capability of these nodes, as a result of a whole lot of our key mid vary merchandise match into these nodes. In order that we do have to observe fairly carefully. It doesn’t appear to be occurring proper now, however it might sooner or later. So we keep watch over it for certain.
I assume one of many concepts is that the world will nonetheless want these chips and if these instruments don’t go to 1 area, they’re going to go to a distinct area and it will get again to this regionalization alternative we see. So that will be the response, in the event you ask how we are going to make up for it. The concept is, these fabs — chips are going to be in-built someplace. And we definitely are plugged in all areas of the world, and we’ll attempt to reap the benefits of that. There could also be one other remark or two from Richelle on this specific subject. She is engaged on it very diligently day by day.
Richelle Burr — Chief Administrative Officer
I feel that’s, Chris, I feel every part you mentioned is correct. And we’re nonetheless ready to see what really Netherlands and Japan lastly comply with.
Thomas Diffely — D.A. Davidson — Analyst
Okay, thanks each. I admire that further shade. After which last query, John, you talked about capex of $130 million this 12 months. I used to be shocked you talked concerning the mainstream growth. I assumed we’re nonetheless at a degree the place the pricing within the mainstream market didn’t assist the acquisition of recent instruments for that area.
John Jordan — Chief Monetary Officer
So and that’s good reminiscence Tom. You’re completely proper. However as we talked about, I feel firstly of final 12 months, there may be nonetheless level instruments that we are able to complement our current strains with and to the extent that these can be found. There different used instruments on the markets that we could possibly pickup at a lot lower than new worth and people for essentially the most half are usually not even produced anymore. So to the extent we are able to scavenge instruments like that, we additionally complement the present strains. So it’s actually simply on a degree device form of exception foundation.
Thomas Diffely — D.A. Davidson — Analyst
Okay, effectively, thanks all in your time this morning.
John Jordan — Chief Monetary Officer
Tom, thanks for getting up early to name in.
Thomas Diffely — D.A. Davidson — Analyst
Simply one other day on the West Coast right here.
John Jordan — Chief Monetary Officer
Yeah.
Operator
[Operator Instructions]. Girls and gents, there are not any additional questions right now. I’ll now flip the decision over to Frank Lee for closing feedback.
Frank Lee — Chief Government Officer
All proper. Thanks. Thanks for becoming a member of us this morning. We’ve made a superb begin in 2023 and we’re working arduous to serve our buyer and management our operations so we are able to keep our income and margins. We stay optimistic on the long-term demand outlook for photomask and imagine we are able to keep our place because the market chief. Thanks once more in your curiosity and have a terrific day. Thanks.
Operator
[Operator Closing Remarks].