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) January 15, 2020
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(State or other jurisdiction of incorporation)
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(Commission File Number)
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(IRS Employer Identification Number)
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(Former name or former address, if changed since last report)
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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:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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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. ☐
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Regulation FD.
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On January 15, 2020, Photronics, Inc. (the “Company”) will present at the 22nd Annual Needham Growth Conference. The presentation to be used
during the event is attached as Exhibit 99.1 to this Form 8-K. The presentation will also be available via webcast. Interested parties may register for the webcast through the Investors section of the Company’s website at www.photronics.com.
In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed
“filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as
amended, except as shall be expressly set forth by specific reference in such a filing.
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Item 9.01.
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Financial Statements and Exhibits.
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(d)
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Exhibits
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Presentation dated January 15, 2020
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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.
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PHOTRONICS, INC.
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(Registrant)
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By: /s/ Richelle E. Burr
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Name:
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Richelle E. Burr
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Title:
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Chief Administrative Officer | |
Date: January 15, 2020
Exhibit 99.1
Photronics, Inc.Global Leader in the Merchant Photomask Industry 22nd Annual Needham Growth
ConferenceJanuary 15, 2020
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”, “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.
Global leader in merchant photomask industryDelivering growth by leveraging core competencies:
Operational Excellence, Low Cost Producer, Technology Leadership, Customer IntimacyGrowing more quickly than the marketTechnology aligned with secular growth trendsChina industry expansion (IC & FPD) – Made in China 2025Technology
inflection from LCD to AMOLEDRapid expansion of G10.5+ panel capacityInvestment strategy drives earnings growthStrategic investments bring top-line growthOperating leverage creates margin expansionIncreasing free cash flow to fund growth
investments and share repurchase A Compelling Investment Thesis 3
Photronics at a Glance 4 Unmatched Global Footprint11 Strategically Located Manufacturing Facilities
Photomasks: Essential for Electronics Manufacturing 5 Component Design End User Manufacturing
Process Photomask BRINGS DESIGN TOMANUFACTURING FLOOR
Cost controlSupply chain optimization Low Cost Producer Flexible deliveryHigh yields Operational
Excellence Trusted partnerWafer yield enhancement Customer Intimacy Process know-howAdvanced PoR Technology Leader Core Competencies Underpin Sustainable Growth 6
ChinaTotal TAM ~$700M by 2022Region with strongest growth potentialSupported by new manufacturing
facilities since 2019IC CaptiveApproximately $2.6B TAMWe are seen as trusted partnerCommitments improve sustainabilityHigh-end revenue growthHigh value and high growthSupports China & captive initiatives Repositioned for
Growth 7 +245% +44% +53% Note: classifications in graph above are not distinct; revenue related to certain products may appear in more than one category
Repositioned the companyGrew high-end revenue Investing in ChinaPhase I – 2019-2020Phase II –
2020-2021 Leveraging FPD technology inflections Entering strategic photomask partnershipsExploring adjacent market M&A Driving Sustainable, Profitable Growth 8 Past (2017 – 2018) Recent and Present (2019 – 2021) Future (2022 and
beyond)
We already have growing business in China27% of total revenue in 201918% of IC revenue52% of FPD
revenueGrowing strong since 2016IC +83% CAGRFPD +59% CAGRManufacturing presence in China aims to accelerate growthCustomer contracts help ramp facilities more quicklyInvestment incentives reduce risk and improve returnsIC JV enables us to
compete more effectively Developing and Growing China Business 9 +69% CAGR
Mobile devices moving from LCD to AMOLEDSuperior visual characteristicsLower power consumptionEnables
flexible formatPreferred for VR/AR devicesIncreasing mask complexityMore mask layers per setTighter specs on each layerEstablished technology leadership1st firm with P-800 mask writerProduces highest resolution AMOLED masksCompetitive
advantage vs. all merchants and captives Leveraging Technology Leadership for Mobile Display AMOLED Adoption 10 Source: Internal Estimates AMOLED remains preferred technology for mobile applications
65” 65” 65” 65” 65” 65” 65” 65” 95% G10.5+ Improved Glass Efficiency for
Ultra-Large Screen TV 11 2940 mm x 3370 mm 2200 mm x 2500 mm 1950 mm x 2250 mm 1500 mm x 1850 mm 75” 75” 75” 75” 75” 75” 94% 65” 65” 65” 64% 75” 75” 73% 65” 65” 88%
China represents fastest growing display region51 fabs in production or under constructionLargest LCD
display producer (Korea 2nd)Photomask opportunities in China are attractiveWide range of display technologiesNo merchant photomask producer with high-end experienceWe are aligned with fastest growing sectors: AMOLED & G10.5+ “Made in
China 2025” Driving Growth in FPD Market 12 Source: Internal Estimates +12% CAGR
51 China Display Fabs in Production by 2022 13 Image from
https://commons.wikimedia.org/wiki/File:China-equirect.png G10.5+ (5)AMOLED (16)LCD (30) Photronics LocationsFPD KoreaFPD HefeiFPD
Taiwan
China represents fastest growing semiconductor regionGrowing domestic producersInvestments by
multi-nationalsMore investment needed to meet national targets2023 forecast is 21%China government target is 40% by 2020, 70% by 2025Photomask opportunities in China are attractiveWide range of nodes in logic and memoryNo strong domestic
merchant mask producer “Made in China 2025” Driving Growth in IC Market 14
22 New China 12” IC Fabs 2018-2022 15 Image from
https://commons.wikimedia.org/wiki/File:China-equirect.png Photronics LocationsIC KoreaIC XiamenIC TaiwanIC Boise (not shown) Logic (16)Memory (6)
Top line growth with continued focus on driving costs outDisciplined focus on investments to improve
ROICMaintain strong balance sheet while returning cash to shareholdersShare repurchasesFlexibility to invest in other growth opportunities (organic or M&A) Strategic Priorities to Improve Shareholder Value 16
Powerful operating leverage: target 50%Strong operating cash flow generatorDisciplined investment
approachSolid balance sheet Solid Financial Fundamentals 17
Key Success Factors“Made in China 2025” – new facilitiesFPD technology inflectionsRepositioned the
companyNode migration (logic & memory)Growing business with captive producersIC JV’s in China and TaiwanStable mainstream businessCross-site collaboration to serve global customers On Our Way to 2020 Target 18 Q4 2019 Run-rate $625M
Fund organic growthGeographic expansion into ChinaInvestments to maintain technical leadershipCapacity
expansion when reciprocated by customer commitmentExplore strategic M&APhotomask industry – IC & FPDAdjacencies to increase revenue diversificationShare repurchaseRepurchased 4.7M shares ($44.8M) since 2018$89M remaining in current
$100M authorizationRedeemed $115M in convertible debt since 2016, eliminating 10.3M potentially dilutive shares Clear Capital Deployment Priorities 19 -15%
Clear path to accelerate profitable growthPrudent stewardship of balance sheetFinancial model to grow
income faster than revenueOn track to achieve financial targetsRevenue $630M & EPS $0.80 by 2020Operating margin > 15%Minimum $100M net cashImprove ROIC – no projects accepted below hurdle rate Financial Summary 20
Global leader in merchant photomask industryDelivering growth by leveraging core competencies:
Operational Excellence, Low Cost Producer, Technology Leadership, Customer IntimacyGrowing more quickly than the marketTechnology aligned with secular growth trendsChina industry expansion (IC & FPD) – Made in China 2025Technology
inflection from LCD to AMOLEDRapid expansion of G10.5+ panel capacityInvestment strategy drives earnings growthStrategic investments bring top-line growthOperating leverage creates margin expansionIncreasing free cash flow to fund growth
investments and share repurchase A Compelling Investment Thesis 21
Thank you for your interest! For Additional Information:R. Troy Dewar, CFAVice President, Investor
Relations203.740.5610tdewar@photronics.com
Appendix
Record revenue, up 13% Q/Q and 8% Y/YRecord FPD revenue driven by mobile displays and Hefei production
rampRecord IC revenue as China design activity acceleratesRecord revenue of products shipped to China, representing 33% of total revenueOperating margin expanded to 13.7% on operating leverage and cost controlNet income attributable to
Photronics, Inc. shareholders of $9.7M ($0.15/share)Cash balance grew to $207M on strong operating cash flowRepurchased 1.0M shares for $11MChina production contributed $11M to revenue Q4 2019 Summary 24 Successfully repositioned the
business; China investments driving long-term, profitable growth
$M (except EPS) Q419 Q319 Q/Q Q418 Y/Y Revenue $ 156.3 $ 138.1 13% $ 144.7 8% Gross
Profit $ 38.2 $ 30.6 25% $ 35.4 8% Gross Margin 24.4% 22.1% 230 bps 24.5% (10 bps) Operating Income $ 21.5 $ 13.4 60% $ 18.0 19% Operating Margin 13.7% 9.7% 400 bps 12.5% 120 bps Other income (expense) ($ 6.1) ($
0.3) ($ 5.8) $ 2.3 ($ 8.4) Income tax provision $ 2.3 $ 3.2 ($ 0.9) $ 3.6 ($ 1.2) Minority interest $ 3.3 $ 3.5 ($ 0.1) $ 4.3 ($ 0.9) Net Income* $ 9.7 $ 6.3 53% $ 12.5 (22%) Diluted EPS* $ 0.15 $ 0.10 $ 0.05 $
0.18 ($ 0.03) Days in quarter 95 91 4 94 1 Gross and operating margin improved Q/Q on revenue growth, operating leverage and cost controlsChina operations were $4.1M negative impact to operating incomeOther income/expense primarily
attributable to FX gain/lossMinority interest reflects Taiwan JV gain partially offset by China JV loss Income Statement Summary 25 *Net income attributable to Photronics, Inc. shareholders
Revenue grew with increase in broad-based design activityChina revenue rebounded as firms accelerate
product development+72% Q/Q; +32% Y/YRepresents 22% of Q419 IC revenueOutlookExpect stable to improving high-end demandAnticipate production ramping in XiamenPotential impact from US-China trade discussionsSeasonal
headwinds $M Q419 Q319 Q/Q Q418 Y/Y High-End* $ 45.0 $ 38.5 17% $ 39.4 14% Mainstream $ 67.6 $ 61.7 9% $ 71.4 (5%) Total $ 112.5 $ 100.2 12% $ 110.9 1% IC Photomask Revenue 26 *28nm and smaller Total may differ
due to rounding
IC Photomask Revenue 27 Mainstream High-End High-End: 28nm and smaller; total may differ due to
rounding
Record FPD revenue driven by mobile displays and China production ramp, including G10.5+China revenue
+32% Q/Q; +118% Y/YRepresents 61% of Q419 FPD revenueOutlookMobile display demand expected to remain highLCD industry downturn continuesHefei shipments should continue to ramp $M Q419 Q319 Q/Q Q418 Y/Y High-End* $ 28.5 $ 25.9 10% $
22.0 29% Mainstream $ 15.2 $ 12.0 27% $ 11.8 30% Total $ 43.7 $ 37.9 15% $ 33.8 29% FPD Photomask Revenue 28 *≥G8 and AMOLED Total may differ due to rounding
FPD Photomask Revenue 29 Mainstream High-End High-End: ≥G8 and AMOLED; total may differ due to
rounding
$M Q419 Q319 Q418 Cash $ 207 $ 197 $ 329 Debt $ 53 $ 49 $ 57 Net Cash* $ 154 $ 148 $
272 Operating Cash Flow $ 48 $ 26 $ 44 Capital Expenditures $ 17 $ 20 $ 28 Share repurchase $ 11 - $ 16 Deploying cash balance to fund China investmentsDebt is local China borrowing to finance fixed assetsFY 2019 capex $177M;
anticipate FY 2020 capex ~ $100M (includes 2019 carryover)Repurchased 1.0M shares for $11M (YTD 2.1M shares for $22M)Balance sheet able to fund planned investments, share repurchases, and strategic M&A opportunities Select Financial
Data 30 *Net cash defined as cash and cash equivalents less long-term borrowings (including current portion), as reported in accordance with GAAP
Total Revenue 31 IC FPD