Global Merchant Photomask Leader

23rd Annual Needham Virtual Growth Conference

January 15, 2021

INC.

PHOTRONICS,INC.

Safe Harbor Statement

This presentation and some of our comments may contain projections or other forward-looking statements regarding future events, our future financial performance, and/or the future performance of the industry. These statements are predictions, and contain risks and uncertainties. Actual events or results may differ materially from those presented. These statements include words like "anticipate", "believe", "estimate", "expect", "forecast", "may", "plan", "project", "in our view" or the negative thereto. We cannot guarantee the accuracy of any forecasts or estimates, and we are not obligated to update any forward-looking statements if our expectations change. If you would like more information on the risks involved in forward-looking statements, please see the documents we file from time to time with the Securities and Exchange Commission.

INC.

PHOTRONICS,INC.

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PHOTRONICS,INC. INC.

A Compelling Investment Thesis

  • Global leaderin merchant photomask industry
    • Delivering growth by leveraging core competencies
    • Growing more quickly than the market
  • Technology aligned with secular growth trends
    • China industry expansion (IC & FPD) - Made in China 2025
    • Display technology inflections
  • Investment growth strategy to double EPS
    • Top-linegrowing at twice industry growth rate
    • Operating leverage expands margins
    • Increasing cash flow to fund growth and share repurchase

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Leading merchant with unmatched global presence

Largest Merchant Photomask Manufacturer ($M)

Unmatched Global Footprint

11 Strategically Located Manufacturing Facilities

PHOTRONICS,INC. INC.

PLAB

A

B

C

D

E

IC

FPD

Sources: SEMI 2019 Photomask Characterization Study; internal estimates

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IC

FPD

IC & FPD

4

Investment focus driving financial results

INC. INC.

Converting Investments Into Revenue ($M)

610

535

551

451

191

119

144

100

350

416

406

418

2017

2018

2019

2020

Funding Capital Allocation ($M)

329

279

178

141

131

207

93

57

53

68

71

69

2018

2019

2020

PHOTRONICS,

IC

FPD

Capex

Cash

Debt

OCF

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PHOTRONICS,INC. INC.

Growing China business

China Revenue ($M)

208

43

2017

2020

IC

FPD

1/15/2021

  • We have growing business in China
    • 34% of total revenue in 2020
      • 23% of IC revenue
      • 58% of FPD revenue
    • Growing strong since 2017
      • IC +67% CAGR
      • FPD +71% CAGR
  • Local manufacturing accelerates growth
  • Customer contracts fosters sustainable results
  • IC JV enables us to compete more effectively

6

FPD nearly doubled over 3 years

PHOTRONICS,INC. INC.

FPD Revenue ($M)

191

100

2017

2020

High-End

Mainstream

  • Targeted high-end investments
    • G10.5+
    • AMOLED & LTPS for mobile
  • Partner with largest panel makers
  • Runway left for advance display growth
    • Mobile platforms
    • Advanced TV
    • Mini & Micro LED
  • 2021 investments aligned with market trends

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PHOTRONICS,INC. INC.

Delivering on commitments

2018 Investor Day Commitment

Results

Growth

$630M revenues and $0.80 EPS

$610M and $0.52, impacted by COVID lockdowns

& trade war

China production to start H119

Hefei delivered; Xiamen plan modified

Market Position

Enter G10.5+ market

Market leader

Grow market share

Delivered

Cash / net cash equal to pre-

2017: cash = $308M; net cash = $246M

Financial Strength

investment

2020: cash = $279M; net cash = $210M plus $79M

in share repurchases since 2018

Improve ROIC

2017 = 1.4%

2020 = 3.9%

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PHOTRONICS,INC. INC.

Evolving investment focus

Past Strategic Targets

Current Strategic Targets

G10.5+

Complete

Advanced display technologies: AMOLED for

AMOLED inflection point

mobile; OLED for TV/IT; emerging Micro and Mini

LED

China geographic expansion

Continues, driven by Made In China 2025

industrial policy and growing nationalism

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INC.

High-tech photomask demand drivers

  • IC
    • EUV - mask and litho tech still maturing, consumes heavy writing resource
    • Mask complexity and count needed for advanced designs
    • SoC trends - multi-function customization alongside SoC disaggregation
    • Cloud to edge computing migration and design activity
  • FPD
    • Mask carrying more of lithography load
    • AMOLED migrating down from premium smartphones
    • TV display innovation: lighting, size, resolution, compensations
    • Gaming, remote work and learning driving demand

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Technology as a tool to support our business growth

Growth Investment Cycle

High-End Revenue ($M)

269

Increase

Develop

Profitability

High-End

213

and Cash

Technology

Flow

and Capability

INC.

Capture Share of

High-Growth, High-

PHOTRONICS,INC.

End Business

2018

2020

IC

FPD

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"Made in China 2025" driving growth

PHOTRONICS,INC. INC.

January 2021

Forecast falling short of policy goals (70% by 2025)

More investment needed to meet targets

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China FPD Mask TAM ($M)

500

400

300

We're aligned with fastest growing

sectors: AMOLED & G10.5+

200

100

-

20192021E2023E

G5 G8 G6 LTPS/AMOLED G10.5+

Source: Internal Estimates

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2020 Financial Summary

  • Several revenue records established
    • Revenue of $609.7M
    • FPD revenue of $191.3M
    • China revenue of $207.5M (IC = $97.1M; FPD = $110.5M)
  • Operating income improved 23% Y/Y
  • Generated $143M in cash from operating activities, invested $71M in capex, and returned $34M in cash to shareholders
  • China facilities contributed $79M in revenue with operating loss of $2M; Hefei was profitable for the year

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PHOTRONICS,INC.

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PHOTRONICS,INC. INC.

Illustrative Target Model

2018

2019

2020

Illustrative Target Model

3-Year Horizon

Revenue

$535

$551

$610

$700

$725

$750

5% CAGR

6% CAGR

7% CAGR

Gross Margin

25%

22%

22%

24-26%

26-28%

27-29%

Operating Margin

12%

9%

10%

13-15%

15-17%

17-19%

Operating Cash Flow

$131

$68

$143

$150-160

$160-170

$175-185

Free Cash Flow

$39

($83)

$77

$80-90

$90-100

$100-110

EPS

$0.59

$0.44

$0.52

$1.00-1.05

$1.15-1.25

$1.25-1.35

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Clear capital deployment priorities

PHOTRONICS,INC. INC.

  • Fund organic growth
    • Geographic expansion into China
    • Investments to maintain technical leadership
    • Capacity expansion when reciprocated by customer commitment
    • Financial discipline to improve ROIC
  • Explore strategic M&A
    • Photomask industry - IC & FPD
    • Adjacencies to increase revenue diversification
  • Share repurchase
    • Repurchased 7.9M shares ($79M) since 2018
    • Redeemed $115M in convertible debt since 2016, eliminating 10.3M potentially dilutive shares

Reducing Diluted Shares

(Million Shares)

79

6557

Q315

Q420

Possible Future

Scenario

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Financial discipline improves shareholder value

  • Targeted investments drive top-line growth in excess of market
  • Operating leverage and cost reductions expand margins
    • Target operating margins mid- to high-teens
    • Target incremental margins 50%
  • Strong cash flow generation fortifies balance sheet
  • Capital deployment priorities to improve ROIC

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PHOTRONICS,INC.

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PHOTRONICS,INC. INC.

Summary

  • We have sustained double digit growth in a very challenging environment over the past 3 years
  • Our leadership position is expanding - growing more quickly than markets
  • Moving forward our investment focus is narrowing to drive accretive growth
  • With a business model demonstrated to deliver increasing shareholder value
    • Margin expansion creates earnings power
    • Strong cash flow generation
    • Strategic use of cash to fund growth and enhance shareholder returns

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PHOTRONICS,INC. INC.

A Compelling Investment Thesis

  • Global leaderin merchant photomask industry
    • Delivering growth by leveraging core competencies
    • Growing more quickly than the market
  • Technology aligned with secular growth trends
    • China industry expansion (IC & FPD) - Made in China 2025
    • Display technology inflections
  • Investment growth strategy to double EPS
    • Top-linegrowing at twice industry growth rate
    • Operating leverage expands margins
    • Increasing cash flow to fund growth and share repurchase

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PHOTRONICS,INC. INC.

Questions?

Thank you for your interest!

For Additional Information:

R. Troy Dewar, CFA

Vice President, Investor Relations

203.740.5610

tdewar@photronics.com

INC.

PHOTRONICS,INC.

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Photronics Inc. published this content on 15 January 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 January 2021 21:19:01 UTC