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Photronics Reports Third Quarter Fiscal 2017 Results

BROOKFIELD, CT--(Marketwired - August 14, 2017) -

  • Third quarter sales were $111.6 million, up 3% sequentially with moderate growth in both IC and FPD
  • Net income attributable to Photronics, Inc. shareholders was $4.0 million ($0.06 per diluted share)
  • Increased capital expenditures to fund strategic growth brought net cash1 down slightly during the third quarter to $277 million; balance sheet retains financial strength and flexibility to fund growth
  • Fourth quarter 2017 guidance: sales between $108 and $116 million; diluted EPS between $0.03 and $0.09

Photronics, Inc. (PLAB), a worldwide leader in supplying innovative imaging technology solutions for the global electronics industry, today reported financial results for fiscal 2017 third quarter ended July 30, 2017.

Third quarter sales were $111.6 million, up 3% sequentially and down 9% compared with last year. Sales of integrated circuits (IC) photomasks were $85.1 million, up 3% sequentially and down 7% compared with last year, while sales of flat panel display (FPD) photomasks were $26.5 million, up 3% sequentially and down 16% compared with last year.

Net income attributable to Photronics, Inc. shareholders was $4.0 million ($0.06 per diluted share), compared with $1.8 million ($0.03 per diluted share), for the second quarter of 2017; and $8.1 million ($0.12 per diluted share) for the third quarter of 2016.

"Third quarter sales improved sequentially as we were able to achieve moderate growth in both IC and FPD," said Peter Kirlin, chief executive officer. "IC sales were generally in line with our expectations, as high-end memory grew and high-end logic remained flat. FPD sales were also higher, although slightly below our expectations due to unfavorable product mix. Operating income was modestly lower as an increase in gross profit was offset mostly by higher R&D, as qualification activity remained robust. As we ramped up capex during the quarter, primarily to complete our FPD investment, our cash balance declined slightly. However, we still have tremendous financial strength and flexibility to fund strategic growth initiatives."

Fourth Quarter 2017 Guidance

Kirlin continued, "Our outlook for the fourth quarter calls for performance similar to the third quarter. High-end memory should continue to grow steadily as we've seen every quarter year-to-date. The anticipated recovery in high-end logic has been delayed until 2018. High-end FPD capacity will expand during the quarter, with actual sales growth dependent on the mix of high-end business, which may remain tepid for the quarter. Shifting focus to our balance sheet, our cash balance will likely decrease during the fourth quarter as we ramp up investments for our China expansion." For the fourth quarter of 2017, Photronics expects revenues to be between $108 million and $116 million and net income attributable to Photronics, Inc. shareholders to be between $0.03 and $0.09 per diluted share.

Conference Call

A conference call to discuss these results is scheduled for 4:30 p.m. Eastern time on Monday, August 14, 2017. The call can be accessed by logging onto Photronics' web site at www.photronics.com. The live dial-in number is (877) 377-7095 or (408) 774-4601 outside of the United States and Canada. The call will be archived on Photronics' web site for instant replay access.

Non-GAAP Financial Measures

Non-GAAP net income attributable to Photronics, Inc. shareholders, non-GAAP earnings per share, and non-GAAP EBITDA are "non-GAAP financial measures" as such term is defined by the Securities and Exchange Commission, and may differ from non-GAAP financial measures used by other companies. The attached financial supplement reconciles Photronics, Inc.'s financial results under GAAP to non-GAAP financial information. Photronics, Inc. believes these non-GAAP financial measures that exclude certain non-cash or non-recurring income or expense items are useful for analysts and investors to evaluate Photronics, Inc.'s future on-going performance because they enable a more meaningful comparison of Photronics, Inc.'s projected earnings and performance with its historical results of prior periods. These non-GAAP metrics are not intended to represent funds available for Photronics, Inc.'s discretionary use and are not intended to represent, or be used as a substitute for, operating income, net income or cash flows from operations data as measured under GAAP. The items excluded from these non-GAAP metrics, but included in the calculation of their closest GAAP equivalent, are significant components of the condensed consolidated statements of income and must be considered in performing a comprehensive assessment of overall financial performance. Non-GAAP financial information is adjusted for the following items:

  • Non-recurring tax benefit in fiscal 2016 related to the recognition of certain tax benefits in Taiwan that were determined to be realizable in filings for future tax periods
  • Non-recurring net gain on sale of investment in fiscal 2016
  • Interest expense, income tax expense/(benefit), depreciation and amortization, and other items are added to GAAP net income to derive non-GAAP EBITDA

Note:

1. Net cash defined as cash and cash equivalents less long-term borrowings (including current portion), as reported in accordance with GAAP.

About Photronics

Photronics is a leading worldwide manufacturer of photomasks. Photomasks are high precision quartz plates that contain microscopic images of electronic circuits. A key element in the manufacture of semiconductors and flat panel displays, photomasks are used to transfer circuit patterns onto semiconductor wafers and flat panel substrates during the fabrication of integrated circuits, a variety of flat panel displays and, to a lesser extent, other types of electrical and optical components. They are produced in accordance with product designs provided by customers at strategically located manufacturing facilities in Asia, Europe, and North America. Additional information on the Company can be accessed at www.photronics.com

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements made by or on behalf of Photronics, Inc. and its subsidiaries (the Company). The forward-looking statements contained in this press release and other parts of Photronics' web site involve risks and uncertainties that may affect the Company's operations, markets, products, services, prices, and other factors. These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental, and technological factors as well as decisions we may make in the future regarding our business, capital structure and other matters. These forward-looking statements generally can be identified by phrases such as "believes", "expects", "anticipates", "plans", "projects", and similar expressions. Accordingly, there is no assurance that the Company's expectations will be realized. For a fuller discussion of the factors that may affect the Company's operations, see "Forward Looking Statements" in the Company's Quarterly and Annual Reports to the Securities and Exchange Commission on Forms 10-Q and 10-K. The Company assumes no obligation to provide revisions to any forward-looking statements.

   
PHOTRONICS, INC. AND SUBSIDIARIES  
Condensed Consolidated Statements of Income  
(in thousands, except per share amounts)  
(Unaudited)  
               
    Three Months Ended       Nine Months Ended  
    July 30,       April 30,       July 31,       July 30,       July 31,  
    2017       2017       2016       2017       2016  
                                       
Net sales $ 111,579     $ 108,297     $ 123,209     $ 329,707     $ 376,088  
                                       
Costs and expenses:                                      
                                       
  Cost of sales   (89,862 )     (88,140 )     (91,759 )     (264,835 )     (277,915 )
                                       
    Gross profit   21,717       20,157       31,450       64,872       98,173  
                                       
  Selling, general and administrative   (11,639 )     (10,894 )     (11,163 )     (33,403 )     (34,386 )
                                       
  Research and development   (4,812 )     (3,726 )     (5,466 )     (12,023 )     (16,613 )
                                       
    Operating income   5,266       5,537       14,821       19,446       47,174  
                                       
Gain on sale of investment   -       -       157       -       8,940  
                                       
Other income (expense), net   (134 )     (3,622 )     1,237       (5,839 )     (872 )
                                       
  Income before income taxes   5,132       1,915       16,215       13,607       55,242  
                                       
Income tax provision   (333 )     (431 )     (4,762 )     (2,814 )     (6,136 )
                                       
  Net income   4,799       1,484       11,453       10,793       49,106  
                                       
Net loss (income) attributable to noncontrolling interests   (798 )     313       (3,365 )     (3,048 )     (8,162 )
                                       
Net income attributable to Photronics, Inc. shareholders $ 4,001     $ 1,797     $ 8,088     $ 7,745     $ 40,944  
                                       
Earnings per share:                                      
  Basic $ 0.06     $ 0.03     $ 0.12     $ 0.11     $ 0.61  
                                       
  Diluted $ 0.06     $ 0.03     $ 0.12     $ 0.11     $ 0.56  
                                       
Weighted-average number of common shares outstanding:                                      
  Basic   68,525       68,426       67,953       68,376       67,377  
                                       
  Diluted   69,380       69,385       74,317       69,311       76,990  
                                         
                                         
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)
           
    July 30,     October 30,
    2017     2016
           
Assets          
           
  Current assets:          
  Cash and cash equivalents $ 340,572   $ 314,074
  Accounts receivable   91,812     92,636
  Inventories   25,668     22,081
  Other current assets   10,558     12,795
             
    Total current assets   468,610     441,586
           
Property, plant and equipment, net   501,720     506,434
Intangible assets, net   18,320     19,854
Other assets   19,948     20,114
           
Total assets $ 1,008,598   $ 987,988
           
           
           
Liabilities and Equity          
           
Current liabilities:          
  Current portion of long-term borrowings $ 5,541   $ 5,428
  Accounts payable and accrued liabilities   73,769     75,889
           
    Total current liabilities   79,310     81,317
           
Long-term borrowings   57,776     61,860
Other liabilities   16,384     19,337
           
Photronics, Inc. shareholders' equity   739,282     710,363
Noncontrolling interests   115,846     115,111
    Total equity   855,128     825,474
           
Total liabilities and equity $ 1,008,598   $ 987,988
           
           
PHOTRONICS, INC. AND SUBSIDIARIES  
Condensed Consolidated Statements of Cash Flows  
(in thousands)  
(Unaudited)  
               
    Nine Months Ended  
    July 30,       July 31,  
    2017       2016  
               
Cash flows from operating activities:              
  Net income $ 10,793     $ 49,106  
  Adjustments to reconcile net income to net cash              
  provided by operating activities:              
    Depreciation and amortization   64,081       60,102  
    Gain on sale of investment   -       (8,940 )
    Changes in assets, liabilities and other   (1,085 )     (8,881 )
               
Net cash provided by operating activities   73,789       91,387  
               
Cash flows from investing activities:              
  Purchases of property, plant and equipment   (38,759 )     (44,828 )
  Acquisition of Business   (5,400 )     -  
  Proceeds from sale of investments   167       101,853  
  Other   (458 )     584  
               
Net cash provided by (used in) investing activities   (44,450 )     57,609  
               
Cash flows from financing activities:              
  Repayments of long-term borrowings   (4,057 )     (56,276 )
  Proceeds from share-based arrangements   2,529       3,172  
  Dividends paid to noncontrolling interests   (8,298 )     (11,890 )
  Other   (33 )     (19 )
               
Net cash used in financing activities   (9,859 )     (65,013 )
               
Effect of exchange rate changes on cash   7,018       1,819  
               
Net increase in cash and cash equivalents   26,498       85,802  
Cash and cash equivalents, beginning of period   314,074       205,867  
               
Cash and cash equivalents, end of period $ 340,572     $ 291,669  
               
               
PHOTRONICS, INC. AND SUBSIDIARIES  
Non-GAAP Financial Measures  
Reconciliation of GAAP to Non-GAAP Financial Information  
(in thousands, except per share data)  
(Unaudited)  
                               
    Three Months Ended     Nine Months Ended  
    July 30,     April 30,     July 31,     July 30,     July 31,  
    2017     2017     2016     2017     2016  
                               
Reconciliation of GAAP to Non-GAAP Net Income                              
Attributable to Photronics, Inc. Shareholders and EPS data                              
                               
GAAP net income attributable to Photronics, Inc. shareholders $ 4,001   $ 1,797   $ 8,088   $ 7,745   $ 40,944  
  Income tax benefit (a)   -     -     -     -     (3,004 )
  Gain on sale of investment, net of tax (b)   -     -     -     -     (8,753 )
                               
Non-GAAP net income attributable to Photronics, Inc. shareholders $ 4,001   $ 1,797   $ 8,088   $ 7,745   $ 29,187  
                               
Weighted average number of diluted shares outstanding                              
                               
  GAAP   69,380     69,385     74,317     69,311     76,990  
                               
  Non-GAAP   69,380     69,385     74,317     69,311     76,990  
                               
Net income per diluted share                              
                               
  GAAP $ 0.06   $ 0.03   $ 0.12   $ 0.11   $ 0.56  
                               
  Non-GAAP $ 0.06   $ 0.03   $ 0.12   $ 0.11   $ 0.41  
                               
                               
Reconciliation of GAAP Net Income to Non-GAAP EBITDA                              
                               
GAAP Net Income (c) $ 4,799   $ 1,484   $ 11,453   $ 10,793   $ 49,106  
  Interest expense   550     550     612     1,658     2,750  
  Income tax expense   333     431     4,762     2,814     6,136  
  Depreciation and amortization   21,840     21,345     19,572     64,081     60,102  
  Other items (d)   984     921     975     2,842     2,848  
                               
Non-GAAP EBITDA $ 28,506   $ 24,731   $ 37,374   $ 82,188   $ 120,942  
                               
                               

Notes:
(a) Represents tax benefit primarily related to the recognition of prior period tax benefits and other tax positions no longer deemed necessary in Taiwan
(b) Represents gain on sale of investment in a foreign entity
(c) Includes net income attributable to noncontrolling interests, and in 2016 includes gain on sale of investment in a foreign entity
(d) Consists of stock compensation expense