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.
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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 ($M)
Unmatched Global Footprint
11 Strategically Located Manufacturing Facilities
PHOTRONICS,INC. INC.
PLAB | A | B | C | D | E | |||
IC | FPD | |||||||
Sources: SEMI 2019 Photomask Characterization Study; internal estimates
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IC
FPD
IC & FPD
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Investment focus driving financial results
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Converting Investments Into Revenue ($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 | |||
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- 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
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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. 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. 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