Photronics Inc.

09/09/2025 | Press release | Distributed by Public on 09/09/2025 14:35

Quarterly Report for Quarter Ending August 3, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Management's discussion and analysis ("MD&A") of the Company's financial condition and results of operations should be read in conjunction with its condensed consolidated financial statements and related notes. Various sections of this MD&A contain forward-looking statements, all of which are presented based on current expectations, which may be adversely affected by uncertainties and risk factors (presented throughout this filing and in the Company's Form 10-K for fiscal year 2024), that may cause actual results to materially differ from these expectations. See "Forward-Looking Statements".

We sell substantially all of our photomasks to semiconductor designers and manufacturers, and manufacturers of FPDs. Photomask technology is also being applied to the fabrication of other higher-performance electronic products such as photonics, microelectronic mechanical systems, and certain nanotechnology applications. Our selling cycle is tightly interwoven with the development and release of new semiconductor and display designs and applications, particularly as they relate to the semiconductor industry's migration to more advanced product innovation, design methodologies, and fabrication processes. The demand for photomasks primarily depends on design activity rather than sales volumes from products manufactured using photomask technologies. Consequently, an increase in semiconductor or display sales does not necessarily result in a corresponding increase in photomask sales. However, the reduced use of customized ICs, reductions in design complexity, other changes in the technology or methods of manufacturing or designing semiconductors, or a slowdown in the introduction of new semiconductor or display designs could reduce demand for photomasks ‒ even if the demand for semiconductors and displays increases. Advances in semiconductor, display, and photomask design and production methods that shift the burden of achieving device performance away from lithography could also reduce the demand for photomasks. Historically, the microelectronics industry has been volatile, experiencing periodic downturns and slowdowns in design activity. These negative trends have been characterized by, among other things, diminished product demand, excess production capacity, and accelerated erosion of selling prices, with a concomitant effect on revenue and profitability.

We are typically required to fulfill customer orders within a short period of time, sometimes within twenty-four hours. This results in a minimal level of backlog, typically two to three weeks of backlog for FPD photomasks and one to two weeks for IC photomasks. However, the demand for some IC photomasks has in the past expanded beyond the industry's capacity to supply them within the traditional time period; thus, for some products, the backlog can expand to as long as two to three months.

The global semiconductor and FPD industries are driven by end markets which have been closely tied to consumer-driven applications of high-performance devices, including, but not limited to, mobile display devices, mobile communications, and computing solutions. While we cannot predict the timing of the industry's transition to volume production of next-generation technology nodes, or the timing of up and down-cycles with precise accuracy, we believe that such transitions and cycles will continue into the future, beneficially and adversely affecting our business, financial condition, and operating results as they occur. We believe our ability to remain successful in these environments is dependent upon the achievement of our goals of being a service and technology leader and efficient solutions supplier, which we believe should enable us to continually reinvest in our global infrastructure.


Results of Operations

The following tables present selected operating information expressed as a percentage of revenue. The columns may not foot due to rounding.

Three Months Ended
Nine Months Ended
August 3,
May 4,
July 28,
August 3,
July 28,
2025
2025
2024
2025
2024
Revenue

100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Cost of goods sold
66.3
63.1
64.4
64.6
63.7
Gross profit
33.7
36.9
35.6
35.4
36.3
Operating expenses:
Selling, general, and administrative
8.8
8.6
9.2
8.8
8.8
Research and development
2.0
1.9
1.7
2.0
1.8
Operating income
22.9
26.4
24.7
24.6
25.7
Other income (expense), net
(4.5
)
(12.2
)
4.8
(1.6
)
4.2
Income before income tax provision
18.4
14.2
29.5
23.0
29.9
Income tax provision
4.6
2.7
6.7
5.4
7.6
Net income
13.8
11.5
22.8
17.6
22.3
Net income attributable to noncontrolling interests
3.0
7.3
6.5
5.8
7.3
Net income attributable to Photronics, Inc. shareholders
10.9
%
4.2
%
16.3
%
11.8
%
15.0
%

Note: All the following tabular comparisons, unless otherwise indicated, are for the three months ended August 3, 2025 (Q3 FY25), May 4, 2025 (Q2 FY25) and July 28, 2024 (Q3 FY24) and for the nine months ended August 3, 2025 (YTD FY25) and July 28, 2024 (YTD FY24).

Revenue

Our quarterly revenues can be affected by the seasonal purchasing practices of our customers. As a result, demand for our products is typically reduced during the first quarter of our fiscal year by the North American, European, and Asian holiday periods, as some of our customers reduce their development and, consequently, their buying activities during those periods.


The following tables present changes in revenue disaggregated by product type and geographic origin, in Q3 FY25 from revenue in prior reporting periods.

Changes in Revenue by Product Type ($in millions)

Q3 FY25 compared with Q2 FY25
Q3 FY25 compared with Q3 FY24
YTD FY25 compared with YTD FY24
Revenue
in
Increase
Percent
Increase
Percent
Revenue in
Increase
Percent
Q3 FY25
(Decrease)
Change
(Decrease)
Change
YTD FY25
(Decrease)
Change
IC
High-end*
$
53.6
$
(5.7
)
(9.5
)%
$
4.1
8.4
%
$
173.1
$
4.6
2.8
%
Mainstream
94.2
(2.4
)
(2.5
)%
(12.2
)
(11.5
)%
284.6
(21.4
)
(7.0
)%
Total IC
$
147.8
$
(8.1
)
(5.2
)%
$
(8.1
)
(5.2
)%
$
457.7
$
(16.8
)
(3.5
)%
FPD
High-end*
$
53.5
$
9.9
22.6
%
$
5.1
10.5
%
$
146.8
$
(0.2
)
(0.1
)%
Mainstream
9.1
(2.4
)
(21.0
)%
2.4
35.5
%
29.0
6.2
26.9
%
Total FPD
$
62.6
$
7.5
13.5
%
$
7.5
13.6
%
$
175.8
$
6.0
3.5
%
Total Revenue
$
210.4
$
(0.6
)
(0.3
)%
$
(0.6
)
(0.3
)%
$
633.5
$
(10.8
)
(1.7
)%

* High-end photomasks typically have higher ASPs than mainstream products.

Changes in Revenue by Geographic Origin ($in millions) **

Q3 FY25 compared with Q2 FY25
Q3 FY25 compared with Q3 FY24
YTD FY25 compared with YTD FY24
Revenue
in
Increase
Percent
Increase
Percent
Revenue in
Increase
Percent
Q3 FY25
(Decrease)
Change
(Decrease)
Change
YTD FY25
(Decrease)
Change
Taiwan
$
68.4
$
(6.6
)
(8.8
)%
$
0.2
0.4
%
$
216.5
$
(2.0
)
(0.9
)%
China
50.6
(8.1
)
(13.8
)%
(4.7
)
(8.5
)%
162.9
(9.2
)
(5.4
)%
South Korea
43.7
6.1
16.3
%
5.3
13.8
%
121.5
3.5
3.0
%
United States
37.8
7.0
22.9
%
(1.0
)
(2.8
)%
105.4
0.5
0.5
%
Europe
9.1
0.9
11.0
%
(0.7
)
(7.3
)%
25.2
(4.3
)
(14.5
)%
Other
0.8
0.1
15.5
%
0.3
66.4
%
2.0
0.7
51.6
%
$
210.4
$
(0.6
)
(0.3
)%
$
(0.6
)
(0.3
)%
$
633.5
$
(10.8
)
(1.7
)%

** This table disaggregates revenue by the location in which it was earned.

Revenue in Q3 FY25 of $210.4 million represented a decrease of 0.3% compared with Q2 FY25 and Q3 FY24, as weakness in IC revenue was partially offset by strength in FPD demand. Revenue in YTD FY25 of $633.5 million represented a decrease of 1.7% compared to the same period in FY24, primarily due to IC mainstream revenue decrease in Asia, offset slightly by an increase in FPD mainstream revenue.

IC revenue decreased $8.1 million or 5.2% in Q3 FY25 from Q2 FY25, primarily due to a decrease in both high-end and mainstream revenue in Asia reflecting continued headwinds experienced in 2025, including geopolitical trade restrictions and unresolved tariff negotiations. Comparing Q3 FY25 to Q3 FY24, IC revenue decreased $8.1 million or 5.2%, mainly due to reduced mainstream demand in Asia, partially offset by strong high-end order patterns in the United States. IC revenue decreased $16.8 million or 3.5% in YTD FY25 from YTD FY24, mainly due to reduced mainstream demand in Asia and Europe, partially offset by increased high-end demand in the United States.

FPD revenue increased $7.5 million or 13.5% in Q3 FY25 from Q2 FY25, driven by an increase in high-end of $9.9 million or 22.6%. Comparing Q3 FY25 to Q3 FY24, FPD revenue increased $7.5 million or 13.6%, driven by increased demand in both high-end and mainstream markets particularly in South Korea. FPD revenue increased by $6.0 million or 3.5% in YTD FY25 from YTD FY24, mainly due to increased mainstream demand in Asia.


Gross Margin ($ in millions)

Percent
Percent
Percent
Q3 FY25
Q2 FY25
Change
Q3 FY24
Change
YTD FY25
YTD FY24
Change
Gross profit
$
70.9
$
77.9
(9.0
)%
$
75.1
(5.6
)%
224.3
233.6
(4.0
)%
Gross margin
33.7
%
36.9
%
35.6
%
35.4
%
36.3
%

Gross margin decreased by 320 basis points in Q3 FY25 compared to Q2 FY25, primarily as a result of an unfavorable product mix, reflected in material costs increase of 8.2%, or 207 basis points as a percentage of revenue as well as an increase in labor and benefits costs of 6.3%, or 70 basis points as a percentage of revenue.

Gross margin decreased by 190 basis points in Q3 FY25, from Q3 FY24, primarily as a result of an unfavorable product mix, reflected by material costs increase of 11.4%, or 278 basis points as a percentage of revenue, partially offset by a decrease in other cost of goods sold of 11.2%, or 111 basis points as a percentage of revenue.

Gross margin decreased by 90 basis points in YTD FY25 as compared to YTD FY24, mainly due to the decrease in revenue of 1.7% as well as an unfavorable product mix resulting in material costs increase by 2.5% or 102 basis points as a percentage of revenue, partially offset by decreased labor and benefits costs of 4.3%, or 31 basis points as a percentage of revenue.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $18.4 million in Q3 FY25, compared with $18.1 million in Q2 FY25, and $19.4 million in Q3 FY24. The $0.3 million increase from Q2 FY25 was primarily the result of an increase in professional fees of $0.2 million. The $1.0 million decrease from Q3 FY24 was primarily the result of decreased professional fees of $0.8 million.

Selling, general and administrative expenses were $55.6 million in YTD FY25, compared with $56.8 million in YTD FY24. The $1.2 million decrease from YTD FY24 was a result of a decrease in labor and benefits cost of $1.1 million.

Research and Development Expenses

Research and development expenses, which primarily consist of development and qualification efforts related to process technologies for high-end IC and FPD applications, were $4.3 million in Q3 FY25, compared with $4.1 million in Q2 FY25, and $3.6 million in Q3 FY24. The increase from Q2 FY25 and Q3 FY24 was primarily caused by increased qualification activities in Asia.

Research and development expenses were $12.6 million in YTD FY25, compared with $11.3 million in YTD FY24. The $1.3 million increase from YTD FY24 was a result of increased development activities in the U.S.


Other Income (Expense), net ($ in millions)

Q3 FY25
Q2 FY25
Q3 FY24
YTD FY25
YTD FY24
Foreign currency transactions impact, net
$
(14.3
)
$
(31.1
)
$
4.1
$
(26.9
)
$
9.9
Interest expense
-
-
(0.1
)
(0.1
)
(0.3
)
Interest income and other income, net
4.8
5.3
6.1
16.8
17.3
Other income (expense), net
$
(9.4
)
$
(25.8
)
$
10.1
$
(10.2
)
$
26.9

* The columns may not foot due to rounding.

Other Expense, net decreased in Q3 FY25 from Q2 FY25 by $16.4 million primarily driven by favorable movements of the New Taiwan dollar and the South Korean won, against the U.S. dollar. Other Expense, net increased in Q3 FY25 from Q3 FY24 by $19.5 million primarily driven by unfavorable movements of the New Taiwan dollar and the South Korean won, against the U.S. dollar.

Other Expense, net increased in YTD FY25 from YTD FY24 by $37.1 million, primarily due to foreign currency impacts which were driven by unfavorable movements of the New Taiwan dollar and the South Korean won, against the U.S. dollar.

Income Tax Provision ($ in millions)

Q3 FY25
Q2 FY25
Q3 FY24
YTD FY25
YTD FY24
Income tax provision
$
9.6
$
5.7
$
14.1
$
34.2
$
49.0
Effective income tax rate
24.8
%
19.1
%
22.7
%
23.5
%
25.4
%

On December 15, 2022, the European Union (EU) Member States formally adopted the EU's Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development (OECD) Pillar Two Framework. The EU effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. A significant number of other countries are expected to also implement similar legislation with varying effective dates. The Company is currently subject to Pillar Two, but we estimate that the financial impact is immaterial. We will continue to monitor further developments to determine any potential impact in the countries in which we operate.

On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted in the United States. The OBBBA includes significant changes to federal tax law and other regulatory provisions that may impact the Company. The legislation enacted will be effective for Photronics commencing in our fiscal year 2026. We will continue to monitor and evaluate the impact of the legislative changes as more guidance becomes available.

The effective income tax rate is sensitive to the jurisdictional mix of earnings, due in part to the non-recognition of tax benefits on losses in jurisdictions with valuation allowances where the tax benefits of the losses are not available.

The effective income tax rate increases in Q3 FY25, compared with Q2 FY25 and Q3 FY24, are primarily due to changes in the jurisdictional mix of earnings.

The effective income tax rate decrease in YTD FY25 compared with YTD FY24 is primarily due to changes in the jurisdictional mix of earnings.


Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests was $6.2 million in Q3 FY25, compared with $15.4 million in Q2 FY25 and $13.8 million in Q3 FY24; the decrease from Q2 FY25 and Q3 FY24 was the result of the decrease in net income of the Company's joint ventures. Net income attributable to noncontrolling interests was $37.0 million in YTD FY25, compared with $46.8 million in YTD FY24. The decrease was a result of decreased net income at the Company's joint-venture operations.

Liquidity and Capital Resources

Cash and cash equivalents were $479.5 million and $598.5 million as of August 3, 2025, and October 31, 2024, respectively. As of August 3, 2025, total cash and cash equivalents included $416.1 million held by foreign subsidiaries, including an aggregate of $328.2 million held by our joint ventures in Taiwan and China. In addition, we currently have CNY 200 million or USD 25 million of borrowing capacity in China to support local operations. See Note 7 - Debt to the consolidated financial statements for additional information on the Company's outstanding debt and currently available financing. The Company's primary sources of liquidity are the Company's cash on hand and cash we generate from operations.

We continually evaluate alternatives for efficiently funding the Company's capital expenditures and ongoing operations. These reviews may result in the Company's engagement in a variety of investing and financing transactions, in the transfer of cash among subsidiaries, and/or the repatriation of cash to the U.S. The transfer of funds among subsidiaries could be subject to foreign withholding taxes; in certain jurisdictions, repatriation of these funds to the U.S. may subject them to U.S. state income taxes and/or local country withholding taxes. We believe that the Company's liquidity, including available financing, is sufficient to meet the Company's requirements through the next twelve months and thereafter for the foreseeable future. Through the utilization of the Company's existing liquidity, the cash we generate from operations and short-term investments, we plan to continue to invest in the Company's business, with the Company's investments targeted to align with the Company's customers' technology road maps. In addition, we stand ready to invest in mergers, acquisitions, or strategic partnerships, should a suitable opportunity arise.

We estimate capital expenditures for the Company's fiscal year 2025 will be approximately $200 million mainly in Asia and the U.S.; these investments will be targeted towards high-end and mainstream capacity that will increase the Company's operating capability and efficiency, and enable us to support customers' near-term demands. As of August 3, 2025, we had outstanding capital commitments of approximately $147.2 million and accrued liabilities related to capital equipment purchases of approximately $28.3 million. Although payment timing could vary, primarily as a result of the timing of tool delivery, installation and testing, we currently estimate that we will fund $154.8 million of the Company's total $175.5 million committed and recognized obligations for capital expenditures over the next twelve months.

On August 28, 2024, the Board of Directors authorized an increase to the Company's existing share repurchase program from the remaining $31.7 million to $100 million. During the nine-month period ended August 3, 2025, the Company repurchased 5 million shares for $97.4 million. In June 2025, the Board of Directors authorized an additional $25 million share repurchase. As a result, as of August 3, 2025, $27.6 million remained available under this authorization. Depending on market conditions, we may utilize some or the entire remaining approved amount to reacquire additional shares.

As discussed in Note 6 - PDMCX Joint Venture of the Company's consolidated financial statements, DNP, the noncontrolling interest in the Company's China-based joint venture has, under certain circumstances, the right to put its interest in the joint venture to Photronics, or to purchase the Company's interest in the joint venture. Under all such circumstances, the sale of DNP's interest would be at its ownership percentage of the joint venture's net book value, with closing to take place within three business days of obtaining required approvals and clearance. As of the date of issuance of this report, DNP had not indicated its intention to exercise this right. As of August 3, 2025, Photronics and DNP each had net investments in this joint venture of approximately $153.4 million.


Cash Flows

YTD FY25
YTD FY24
Net cash provided by operating activities
$
160.0
$
193.1
Net cash used in investing activities
$
(173.6
)
$
(142.1
)
Net cash used in financing activities
$
(115.3
)
$
(6.4
)

Operating Activities: Net cash provided by operating activities reflects net income adjusted for certain non-cash items, including depreciation and amortization, share-based compensation, and the effects of changes in operating assets and liabilities. Net cash provided by operating activities decreased by $33.1 million in FY25, compared with the same period of FY24, primarily due to decreased net income.

Investing Activities: Net cash flows used in investing activities increased by $31.5 million in FY25, compared to the same period in FY24, primarily driven by an increase of purchases of property, plant and equipment of $32.9 million partially offset by a decrease in purchases of short term investments of $4.0 million.

Financing Activities: Net cash used in financing activities increased by $108.9 million in FY25, compared to the same period of FY24. This was primarily driven by the repurchase of the Company's common shares as part of the Share Repurchase Program of $97.4 million and increase of debt repayments of $13.5 million.

Effects of exchange rate changes on the Company's cash, cash equivalents, and restricted cash balances increased by $16.6 million from unfavorable $6.5 million during YTD FY24 to favorable $10.1 million during the same period of FY25.

Non-GAAP Financial Measures

Non-GAAP Net Income attributable to Photronics, Inc. shareholders and non-GAAP diluted earnings per share attributable to Photronics, Inc. shareholders are "non-GAAP financial measures" as such term is defined by Regulation G of the Securities and Exchange Commission and may differ from similarly named non-GAAP financial measures used by other companies. The financial tables below reconcile Photronics, Inc. financial results under U.S. GAAP to our non-GAAP financial information. We believe these non-GAAP financial measures that exclude certain items are useful for analysts and investors to evaluate the Company's on-going performance because they enable a more meaningful comparison of historical results of the Company's core business. These non-GAAP metrics are not a measure of consolidated operating results under U.S. GAAP and should not be considered as an alternative to Net income (loss), Net income (loss) per share, or any other measure of consolidated results under U.S. GAAP. The items excluded from these non-GAAP metrics but included in the calculation of their closest U.S. GAAP equivalent, are significant components of the condensed consolidated statement of income and must be considered in performing a comprehensive assessment of overall financial performance.


The following table reconciles U.S. GAAP Net Income and Earnings per Share attributable to Photronics, Inc. shareholders to the Non-GAAP Net income and Earnings per Share attributable to Photronics, Inc. shareholders for the indicated periods. The columns may not foot due to rounding.

Three Months Ended
August 3,
May 4,
July 28,
2025
2025
2024
U.S. GAAP Net Income attributable to Photronics, Inc. shareholders
$
22,891
$
8,861
$
34,388
FX (gain) loss
14,258
31,111
(4,068
)
Estimated tax effects of above
(3,663
)
(8,337
)
914
Estimated noncontrolling interest effects of above
(4,130
)
(7,376
)
681
Non-GAAP Net Income attributable to Photronics, Inc. shareholders
$
29,356
$
24,259
$
31,915
Weighted-average number of common shares outstanding - Diluted
58,068
60,974
62,414
U.S. GAAP diluted earnings per share attributable to Photronics, Inc. shareholders
$
0.39
$
0.15
$
0.55
Effects of the above non-GAAP adjustments
0.12
0.25
(0.04
)
Non-GAAP diluted earnings per share attributable to Photronics, Inc. shareholders
$
0.51
$
0.40
$
0.51

Business Outlook

Our current business outlook and guidance was provided in the Photronics Q3 FY25 earnings press release, earnings presentation, and financial results conference call, but is not incorporated herein. These can be accessed in the investor section of our website - www.photronics.com. Information included on our website is not incorporated in this Form 10-Q.

Our future results of operations and the other forward-looking statements contained in this filing and in the Photronics Q3 FY25 earnings press release, and the related financial results conference call and earnings presentation involve a number of risks and uncertainties, some of which were discussed in Part I, Item 1A of our 2024 Form 10-K. These factors and a number of other unforeseeable factors could cause actual results to differ materially from our expectations.

Critical Accounting Estimates

Please refer to Part II, Item 7 of our 2024 Form 10-K for discussion of our critical accounting estimates. There have been no changes to our critical accounting estimates since the filing of our Form 10-K for the year ended October 31, 2024.

Photronics Inc. published this content on September 09, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on September 09, 2025 at 20:35 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]