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UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

 
 Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934

Date of report (Date of earliest event reported)
August 22, 2018

PHOTRONICS, INC.
(Exact name of registrant as specified in its charter)
 
Connecticut
0-15451
06-0854886
(State or Other Jurisdiction of Incorporation)
(Commission File Number)
(IRS Employer Identification No.)
 
15 Secor Road, Brookfield, CT
  
06804
(Address of principal executive offices)
  
(Zip Code)

Registrant's Telephone Number, including area code
  
(203) 755-9000

 
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Item 2.02
Results of Operation and Financial Condition

On August 22, 2018, the Corporation issued a press release reporting third quarter fiscal 2018 results.

A copy of the press release is furnished as Exhibit 99.1 to this report. The information contained in this Item 2.02 and the attached Exhibits 99.1, 99.2, 99.3, 99.4, and 99.5, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and shall not be incorporated by reference in any filing under the Securities Act of 1933 except as shall be expressly set forth by specific reference in such filing.

On August 22, 2018, the Company will conduct a conference call during which certain unaudited, non-GAAP financial information related to the Company’s operations for the three months ended July 29, 2018 may be disclosed. This information is set forth in Exhibit 99.5.

EBITDA is a non-GAAP financial measure that the Company defines pursuant to its credit agreement. The Company believes that EBITDA is generally accepted as providing useful information regarding the operational strength and performance of its business, including the ability of the Company to pay interest, service debt and fund capital expenditures. The Company’s method for calculating EBITDA may not be comparable to methods used by other companies but is the same method the Company uses for calculating EBITDA under its credit facility. The Company has included in the press release certain reconciliation information for EBITDA to its most directly comparable financial measure of net income calculated and reported in accordance with GAAP.

Item 9.01.
Financial Statements and Exhibits

(d)
Exhibits
 
 
Press Release dated August 22, 2018.
 
Condensed Consolidated Statements of Income.
 
Condensed Consolidated Balance Sheets.
 
Condensed Consolidated Statements of Cash Flows.
 
Photronics Q3 2018 Financial Results Conference Call August 22, 2018 slides.
 
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
PHOTRONICS, INC.
(Registrant)
    
 
By:
 /s/ Richelle E. Burr
  Name: 
Richelle E. Burr
  Title:
Vice President, General Counsel and Secretary
 
Date: August 22, 2018
 
 
Exhibit 99.1
 
 
Press Release
For Further Information:
R. Troy Dewar, CFA
Director, Investor Relations
(203) 740-5610
tdewar@photronics.com
 
 
Photronics Reports Third Quarter Fiscal 2018 Results
 
•
Third quarter 2018 revenue was $136.4 million, up 22% year-over-year and 4% sequentially
 
•
High-end IC revenue nearly doubled, improving 94% year-over-year on strong demand from Asia foundries
 
•
Net income attributable to Photronics, Inc. shareholders was $13.0 million, or $0.18 per diluted share
 
•
Cash balance increased to $333 million, with strong operating cash flow of $49.0 million
 
•
Returned $6.8 million to shareholders through share repurchase program
 
•
Fourth quarter 2018 guidance: revenue between $133 and $141 million with diluted EPS between $0.14 and $0.19
 
BROOKFIELD, Conn. August 22, 2018 (GLOBE NEWSWIRE) — Photronics, Inc. (NASDAQ:PLAB), a worldwide leader in supplying innovative imaging technology solutions for the global electronics industry, today reported financial results for its fiscal 2018 third quarter ended July 29, 2018.
 
Third quarter revenue was $136.4 million, improving 22% compared with the same quarter last year and 4% compared with the previous quarter. Integrated circuit (IC) revenue was $107.2 million, up 26% compared with last year and 5% sequentially. Flat panel display (FPD) revenue was $29.1 million, up 10% compared with last year and 2% sequentially.
 
Net income attributable to Photronics, Inc. shareholders was $13.0 million ($0.18 per diluted share), compared with $4.0 million ($0.06 per diluted share) for the third quarter of 2017 and $10.7 million ($0.15 per diluted share) for the second quarter of 2018. Results for the third quarter of 2018 includes a $2 million one-time tax benefit ($0.01 per diluted share).
 
"During the third quarter, demand remained strong across nearly all our end markets, and we benefitted from successfully repositioning the business to take advantage of growing markets in China and demand from captives,” said Peter Kirlin, chief executive officer. “High-end IC once again was the primary contributor to growth, nearly doubling compared with last year, up 94%. For FPD, sales of both AMOLED and LTPS LCD photomasks increased, primarily for mobile applications. With the increase in revenue, we expanded margins through operating leverage and cost control, delivering 15% operating margin. In addition to strong revenue and income growth, our cash balance increased to $333 million, demonstrating once again our ability to generate strong cash from operations. Our balance sheet is very healthy as we approach the peak of our China investment over the next two quarters, and we have begun to return cash to our shareholders through the initiation of a share repurchase program last quarter. We have increased our momentum heading into the end of fiscal 2018, and are now in an even stronger position to ramp our China facilities in 2019.”
 
Fourth Quarter 2018 Guidance
 
For the fourth quarter of 2018, Photronics expects revenue to be between $133 million and $141 million, and net income attributable to Photronics, Inc. shareholders to be between $0.14 and $0.19 per diluted share.
 
Conference Call
 
A conference call to discuss these results is scheduled for 8:30 a.m. Eastern time on Wednesday, August 22, 2018. 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.
 
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 display 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.
 
 
Exhibit 99.2

PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
 
   
Three Months Ended
    
Nine Months Ended
  
   
July 29,
2018
    
April 29,
2018
    
July 30,
2017
    
July 29,
2018
    
July 30,
2017
  
 
                               
Revenue
  
$
136,391
    
$
130,779
    
$
111,579
    
$
390,616
    
$
329,707
  
                                         
Cost of goods sold
    
(100,794
)
    
(97,960
)
    
(89,862
)
    
(294,538
)
    
(264,835
)
                                         
Gross profit
    
35,597
      
32,819
      
21,717
      
96,078
      
64,872
  
                                         
Operating Expenses:
                                        
                                         
Selling, general and administrative
    
(12,504
)
    
(13,637
)
    
(11,639
)
    
(37,891
)
    
(33,403
)
                                         
Research and development
    
(2,653
)
    
(3,817
)
    
(4,812
)
    
(10,574
)
    
(12,023
)
                                         
Total Operating Expenses
    
(15,157
)
    
(17,454
)
    
(16,451
)
    
(48,465
)
    
(45,426
)
                                         
Operating income
    
20,440
      
15,365
      
5,266
      
47,613
      
19,446
  
                                         
Other income (expense), net
    
1,411
      
3,332
      
(134
)
    
637
      
(5,839
)
                                         
Income before income taxes
    
21,851
      
18,697
      
5,132
      
48,250
      
13,607
  
                                         
Income tax provision
    
(2,054
)
    
(3,508
)
    
(333
)
    
(3,783
)
    
(2,814
)
                                         
Net income
    
19,797
      
15,189
      
4,799
      
44,467
      
10,793
  
                                         
Net income attributable to noncontrolling interests
    
(6,792
)
    
(4,524
)
    
(798
)
    
(14,899
)
    
(3,048
)
                                         
Net income attributable to Photronics, Inc. shareholders
  
$
13,005
    
$
10,665
    
$
4,001
    
$
29,568
    
$
7,745
  
                                         
Earnings per share:
                                        
                                         
Basic
  
$
0.19
    
$
0.15
    
$
0.06
    
$
0.43
    
$
0.11
  
                                         
Diluted
  
$
0.18
    
$
0.15
    
$
0.06
    
$
0.41
    
$
0.11
  
                                         
Weighted-average number of common shares outstanding:
                                        
                                         
Basic
    
69,374
      
69,293
      
68,525
      
69,141
      
68,376
  
                                         
Diluted
    
75,258
      
75,190
      
69,380
      
75,121
      
69,311
  

 
Exhibit 99.3
 
PHOTRONICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)
 
   
July 29,
2018
    
October 29,
2017
  
             
Assets
            
             
Current assets:
            
Cash and cash equivalents
  
$
332,739
    
$
308,021
  
Accounts receivable
    
118,727
      
105,320
  
Inventories
    
31,756
      
23,703
  
Other current assets
    
21,698
      
12,080
  
                 
Total current assets
    
504,920
      
449,124
  
                 
Property, plant and equipment, net
    
546,688
      
535,197
  
Intangible assets, net
    
13,507
      
17,122
  
Other assets
    
22,897
      
19,351
  
                 
Total assets
  
$
1,088,012
    
$
1,020,794
  
                 
                 
Liabilities and Equity
                
                 
Current liabilities:
                
Current portion of long-term borrowings
  
$
57,893
    
$
4,639
  
Accounts payable and accrued liabilities
    
100,949
      
77,137
  
                 
Total current liabilities
    
158,842
      
81,776
  
                 
Long-term borrowings
    
-
      
57,337
  
Other liabilities
    
15,657
      
16,386
  
                 
Photronics, Inc. shareholders' equity
    
770,810
      
744,564
  
Noncontrolling interests
    
142,703
      
120,731
  
Total equity
    
913,513
      
865,295
  
                 
Total liabilities and equity
  
$
1,088,012
    
$
1,020,794
  
 
 
Exhibit 99.4
 
PHOTRONICS,  INC.  AND  SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 
   
Nine Months Ended
  
   
July 29,
2018
    
July 30,
2017
  
 
             
Cash flows from operating activities:
            
Net income
  
$
44,467
    
$
10,793
  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation and amortization
    
64,485
      
64,081
  
Changes in operating assets, liabilities and other
    
(21,995
)
    
(1,085
)
                 
Net cash provided by operating activities
    
86,957
      
73,789
  
                 
Cash flows from investing activities:
                
Purchases of property, plant and equipment
    
(64,372
)
    
(38,759
)
Acquisition of business
    
-
      
(5,400
)
Proceeds from sale of investments
    
-
      
167
  
Other
    
453
      
(458
)
                 
Net cash used in investing activities
    
(63,919
)
    
(44,450
)
                 
Cash flows from financing activities:
                
Repayments of long-term borrowings
    
(4,170
)
    
(4,057
)
Dividends paid to noncontrolling interests
    
(8,166
)
    
(8,298
)
Purchase of treasury stock
    
(6,787
)
    
-
  
Contribution from noncontrolling interest
    
17,996
      
-
  
Proceeds from share-based arrangements
    
4,028
      
2,529
  
Other
    
(273
)
    
(33
)
                 
Net cash provided by (used in) financing activities
    
2,628
      
(9,859
)
                 
Effect of exchange rate changes on cash
    
(948
)
    
7,018
  
                 
Net increase in cash and cash equivalents
    
24,718
      
26,498
  
Cash and cash equivalents, beginning of period
    
308,021
      
314,074
  
                 
Cash and cash equivalents, end of period
  
$
332,739
    
$
340,572
  

 
Exhibit 99.5
 
 Photronics, Inc.  Q3 2018 Financial Results Conference CallAugust 22, 2018 
 
 Safe Harbor Statement  2  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”, “should”, “plan”, “project” 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, specifically our most recent Form 10K and Form 10Q.Non-GAAP Financial MeasuresThis presentation and some of our comments may reference non-GAAP financial measures. These non-GAAP financial measures exclude certain income or expense items, and are consistent with another way management internally analyzes our results of operations. Non-GAAP information should be considered to be a supplement to, and not a substitute for, financial statements prepared in accordance with GAAP. Please see the “Reconciliation of GAAP to Non-GAAP Financial Information” in this presentation. 
 
 Revenue grew 22% Y/Y and 4% Q/QHigh-end IC +94% Y/YChina revenue up 132% Y/Y & 44% Q/QRevenue to IC captives increased 161% Y/YGross and operating margins expanded on high operating leverage and cost containmentNet income attributable to Photronics, Inc. shareholders of $13.0M ($0.18/share)Cash balance grew to $333M on strong OCFLaunched share buyback program; repurchased 0.8M shares for $6.8M in Q318China investments on trackConstruction to be completed during Q418Tool move-in during Q119  Q3 2018 Summary  3  Successfully repositioned the business; China investments driving long-term, profitable growth 
 
 $M (except EPS)  Q318  Q218  Q/Q  Q317  Y/Y  Revenue  $ 136.4  $ 130.8  4%  $ 111.6  22%  Gross Profit  $ 35.6  $ 32.8  8%  $ 21.7  64%  Gross Margin  26.1%  25.1%  100 bps  19.5%  660 bps  Operating Income  $ 20.4  $ 15.4  33%  $ 5.3  3.9x  Operating Margin  15.0%  11.7%  330 bps  4.7%  1030 bps  Net Income*  $ 13.0  $ 10.7  22%  $ 4.0  3.3x  Diluted EPS*  $ 0.18  $ 0.15  $ 0.03  $ 0.06  $ 0.12  Higher revenue as we achieved growth in both IC & FPDGross margin further improved due to high operating leverageOperating margin increased on lower opexOther income down Q/Q on smaller FX gainLower income tax Q/Q due to $2M one-time tax benefit ($0.01/share)Minority interest increased to $6.8M due to strong earnings from IC JV  Income Statement Summary  4  *Net income attributable to Photronics, Inc. shareholders 
 
 High-end nearly doubled Y/YHigh-end logic growth driven by Asia foundriesMemory demand from Asia continues to be strongChina IC revenue up 3x Y/Y; represents 16% of Q318 IC revenueRevenue to customers with captive mask operations increased 161% Y/YExpect demand trends to continue in Q4High-end logic improvingHigh-end memory flat to upMainstream stable  $M  Q318  Q218  Q/Q  Q317  Y/Y  High-End*  $ 46.1  $ 41.5  11%  $ 23.7  94%  Mainstream  $ 61.2  $ 60.8  1%  $ 61.5  0%  Total  $ 107.2  $ 102.3  5%  $ 85.2  26%  IC Photomask Revenue  5  *28nm and smaller  Total may differ due to rounding 
 
 Repositioning the business for mobile display and China G10.5+High-end AMOLED up 52% sequentiallyMainstream driven by LTPS mobile growthHigh-end down as we pivot away from G8.5China represents 43% of Q318 FPD revenueBegan to generate revenue from new P-800 mask writer; enables us to maintain AMOLED technology leadership  $M  Q318  Q218  Q/Q  Q317  Y/Y  High-End*  $ 17.1  $ 18.2  (6%)  $ 16.8  2%  Mainstream  $ 12.1  $ 10.3  17%   $ 9.7  25%  Total  $ 29.1  $ 28.5  2%  $ 26.4  10%  FPD Photomask Revenue  6  *≥G8 and AMOLED  Total may differ due to rounding 
 
 $M  Q318  Q218  Q317  Cash  $ 333  $ 321  $ 341  Debt  $ 58  $ 59  $ 63  Net Cash*  $ 275  $ 262  $ 277  Operating Cash Flow  $ 49  $ 7  $ 27  Capital Expenditures  $ 20  $ 33  $ 25  LTM EBITDA  $ 153  $ 138  $ 111  Cash balance improved on strong operating cash flow2018 capex now expected to be $135M - $150M (YTD = $64M)Lower than previous guidance as some cash flows moved into Q119Capex for Q119: $135M - $150MRepurchased $6.8M in shares during Q318Received $6M capital contribution from China JV partnerBalance sheet able to fund planned investments and strategic M&A opportunities  Select Financial Data  7  *Net cash defined as cash and cash equivalents less long-term borrowings (including current portion), as reported in accordance with GAAP 
 
 Revenue ($M)  $133 - $141  Taxes ($M)  $2 - $3  EPS  $0.14 - $0.19  Diluted Shares (M)  ~75  High-end demand expectations are positiveHigh-end IC logic up on Asia foundry demandHigh-end IC memory stable to improvingHigh-end FPD mask demand should improve as AMOLED industry supply increasesExpect margin headwinds thru H119 as China operations begin to ramp ahead of production in first half of 2019Expect EPS impact of $0.03 - $0.06 per quarterPlan to be profitable by end of 2019  Q418 Guidance   8 
 
 Thank you for your interest!  For Additional Information:R. Troy Dewar, CFADirector, Investor Relations203.740.5610tdewar@photronics.com  
 
 Appendix 
 
 IC Photomask Revenue  11  Mainstream$249.9M62%  High-End$151.4M38%  High-End: 28nm and smaller; total may differ due to rounding 
 
 FPD Photomask Revenue  12  Mainstream$39.1M35%  High-End$71.2M65%  High-End: ≥G8 and AMOLED; total may differ due to rounding  Mainstream$32.5M32%  High-End$67.9M68% 
 
 Non-GAAP Reconciliation 
 
 14