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PI

PHOTRONICS INC (PLAB)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY2025 revenue was $211.0M, down 3% YoY and 1% QoQ, with non-GAAP diluted EPS of $0.40; GAAP diluted EPS fell to $0.15 due to a sizable FX loss, while gross margin expanded and operating margin improved sequentially .
  • Versus S&P Global consensus, revenue was essentially in line while non-GAAP EPS missed (Actual: $0.40 vs. $0.48*) driven by mainstream IC softness, memory timing, and FX effects; EBITDA modestly outperformed consensus ($75.3M vs. $73.1M*) . Values retrieved from S&P Global.
  • Management initiated a CEO transition (Frank Lee stepping down as CEO; George Macricostas appointed CEO) and executed an aggressive buyback of $72.1M (3.6M shares), reducing diluted share count and signaling confidence in long-term prospects .
  • Q3 FY2025 guidance implies a cautious near-term demand backdrop and tariff uncertainty: revenue $200–$208M and non-GAAP EPS $0.35–$0.41, operating margin 20–22%—in line with consensus on midpoint . Values retrieved from S&P Global.
  • Strategic narrative centers on node migration (22nm/28nm logic in Asia), emerging G8.6 AMOLED masks, regionalization/reshoring in the U.S., and maintaining negligible tariff exposure via diversified footprint—key catalysts for mix improvement and potential share gains .

What Went Well and What Went Wrong

What Went Well

  • Gross margin strengthened to 36.9% and operating margin to 26.4% on favorable project mix and disciplined OpEx, despite softer top-line; “operating margin… improved 180 bps sequentially” .
  • High-end IC demand remained resilient with continued node migration to 22/28nm; Asia JV contributions underpinned profitability and revenue leadership by China/Taiwan .
  • FPD momentum in advanced applications: first-time production featuring larger G8.6 AMOLED panel sizes, with management optimistic about market share capture in the G8.6 era .

Selected quotes:

  • “Node migration remains a positive driver of our IC business… Strategically, we took an aggressive approach to return cash to our shareholders…” — Dr. Frank Lee .
  • “Operating margin benefited as gross margin strengthened on favorable project mix; opex declined Q/Q and Y/Y…” — Investor presentation slide .
  • “We are optimistic that… our advanced photomask technology will help us gain market share in the coming G8.6 AMOLED era.” — Dr. Frank Lee .

What Went Wrong

  • Mainstream IC was weak broadly (Europe highlighted), with lower wafer fab utilizations and an unfavorable supply-demand balance following end-of-life tool replacements; mainstream softness pressured pricing and margins despite mix efforts .
  • Memory revenue timing drove sequential declines; U.S. revenue declined sequentially due to lower-end node weakness and timing of advanced projects .
  • FX loss ($31.1M) materially reduced GAAP EPS to $0.15; non-GAAP EPS of $0.40 was below guidance and consensus .

Financial Results

Headline Metrics vs Prior Periods

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$222.6 $212.1 $211.0
GAAP Diluted EPS ($)$0.54 $0.68 $0.15
Non-GAAP Diluted EPS ($)$0.59 $0.52 $0.40
Gross Margin (%)37.0% 35.6% 36.9%
Operating Margin (%)25.1% 24.6% 26.4%

Segment Revenue

SegmentQ4 2024Q1 2025Q2 2025
IC Revenue ($USD Millions)$163.7 $154.0 $155.9
FPD Revenue ($USD Millions)$58.9 $58.1 $55.1

KPIs

KPIQ4 2024Q1 2025Q2 2025
Operating Cash Flow ($USD Millions)$68.4 $78.5 $31.5
Capital Expenditures ($USD Millions)$43.2 $35.2 $60.5
Share Repurchases ($USD Millions)—$4.6 $72.1
Cash & Short-term Investments ($USD Millions)$640.7 $642.2 $558.4

Q2 Results vs S&P Global Consensus

MetricConsensusActual
Revenue ($USD Millions)$212.0*$210.992
Non-GAAP EPS ($)$0.48*$0.40
EBITDA ($USD Millions)$73.1*$75.311

Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)Q3 2025—$200–$208 New
Non-GAAP Diluted EPS ($)Q3 2025—$0.35–$0.41 New
Operating Margin (%)Q3 2025—20–22% New
Diluted Shares (M)Q3 2025—~59 New
Capex ($USD Millions)FY 2025~$200 ~$200 Maintained
Revenue ($USD Millions)Q2 2025$208–$216 Actual: $211.0 Near midpoint of prior guidance
Non-GAAP Diluted EPS ($)Q2 2025$0.44–$0.50 Actual: $0.40 Below prior guidance

Earnings Call Themes & Trends

TopicQ4 2024 (Narrative)Q1 2025 (Narrative)Q2 2025 (Narrative)Trend
AI/Technology InitiativesMegatrends like AI cited as growth drivers AI adoption seen as longer-term growth driver; adjacent/edge devices and memory strength linked to AI Node migration partly tied to growing AI ecosystem; continued high-end logic masks Strengthening demand mix toward higher-end
Supply Chain/RegionalizationRegionalization supportive; cautious optimism U.S. capacity expansion aligned with reshoring; minimal tariff import exposure Diversified footprint mitigates tariffs; ability to allocate production regionally Reshoring tailwind; tariff risk mitigated
Mainstream IC DynamicsMainstream stable to improving into FY2025 Weakness at oldest nodes; Europe mainstream softness Broad-based mainstream weakness; capacity added after end-of-life tool turnover; not oversupply but unfavorable near-term balance Persistent softness; cautious outlook
FPD/AMOLED G8.6Mainstream-led growth in Q4; tech leadership First orders for G8.6 AMOLED; scaling challenges addressed Seasonal uplift; first production featuring G8.6 AMOLED; positioning to gain share Emerging growth vector
Tariffs/MacroCautious optimism into 2025 Minimal tariff impact expected due to local production; macro/geopolitical top risks Tariff impact determined to be negligible; nevertheless cautious demand outlook Manageable risk; visibility limited
Capital AllocationStrong cash, disciplined capex $200M FY2025 capex; M&A optionality; buyback authorization $100M $72M buyback executed; $23M remaining authorization; capex on track; U.S. expansion priority Accretive deployment, share count reduction

Management Commentary

  • “Revenue was $211.0 million… Non-GAAP Net income… $24.3 million, or $0.40 per diluted share… IC revenue was $155.9 million… FPD revenue was $55.1 million… Cash returned to shareholders through share repurchases was $72.1 million.” — Q2 press release .
  • “We saw healthy foundry demand for both 22 and 28-nanometer photomask products in Asia… U.S. tariff dynamics… we can leverage our diverse geographic footprint… mitigating potential tariff costs.” — Prepared remarks .
  • “Operating margin of 26% in Q2 was above our guidance range… After removing the impact of foreign exchange… non-GAAP EPS was $0.40… We generated $31 million in operating cash flow… CapEx was $61 million.” — CFO .
  • “I look forward to driving Photronics towards the next leg of profitable growth as I focus intensely on operational execution.” — CEO George Macricostas .

Q&A Highlights

  • Mainstream IC capacity/demand: Broad-based weakness (not confined to Asia), some unfavorable near-term supply-demand after end-of-life tool replacements; stable pricing supported by long-term agreements; potential outsourcing of lower-end layers of advanced sets amid regionalization .
  • U.S. capacity expansion: Investments target higher-end mainstream; customers prefer local service; limited reliance on CHIPS Act funding for current projects; applications for small supplier NOFO under consideration .
  • Buybacks: $72M repurchased in Q2; $23M remaining authorization; opportunistic approach balanced against strategic investments/M&A .
  • Risk and visibility: Top risks are macroeconomic and geopolitical; backlog typically 1–3 weeks; limited visibility drives cautious H2 stance .
  • FPD G8.6 execution: Technical scaling challenges addressed; coordinated pilots; production-ready, with potential to scale as fabs ramp .

Estimates Context

  • Q2 FY2025: Revenue essentially in line (Actual $210.992M vs. $212.0M*); EPS missed (Actual non-GAAP $0.40 vs. $0.48*). EBITDA modestly beat ($75.3M vs. $73.1M*) . Values retrieved from S&P Global.
  • Coverage depth: # of estimates was limited (Revenue: 1*, EPS: 1*), suggesting consensus sensitivity to single-reporter inputs. Values retrieved from S&P Global.
  • Q3 FY2025: Guidance midpoint ($204M revenue, $0.38 EPS) aligns with consensus (Revenue $204.30M*, EPS $0.385*), signaling “in-line” expectations amid cautious demand and tariff uncertainty . Values retrieved from S&P Global.

Key Takeaways for Investors

  • Mix resilience at high-end IC and G8.6 AMOLED supports margins; watch for continued node migration to 22/28nm and logic strength in mobile/OLED driver ICs—key drivers of operating leverage .
  • Mainstream IC remains a drag; recovery not projected until later 2026 per customer/utilization commentary; model conservative mainstream volumes and monitor Europe auto/industrial dynamics .
  • FX was the primary GAAP EPS headwind; non-GAAP provides clearer view of operations; expect EPS sensitivity to currency going forward .
  • Share repurchases reduced diluted share count and should provide incremental EPS leverage; remaining authorization allows opportunistic capital return; balance with U.S. capex .
  • Q3 guidance is prudent and broadly in line with consensus; no clear near-term catalyst absent upside from high-end order timing; trading set-up likely tied to visibility on advanced node projects and FPD G8.6 ramp .
  • Tariff risk appears manageable due to regional production allocation; maintain focus on geographic footprint as a competitive advantage in customer engagements .
  • Medium-term thesis: Regionalization and AI-adjacent demand should favor PLAB’s high-end masks and U.S. expansion; investors should track capex execution, LTPAs/customer commitments, and mix progression to sustain 25%+ operating margins .