Photronics, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Three and six months ended May 1, 2022; comparative periods ended May 2, 2021. Amounts below are in U.S. dollars, millions, except per-share data. Photronics manufactures photomasks used in semiconductor and flat-panel display production.
Financial performance
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Revenue | $204.5 | $159.8 | $394.3 | $311.8 |
| Gross profit / margin | $70.2 / 34.3% | $39.2 / 24.6% | $130.1 / 33.0% | $69.8 / 22.4% |
| Operating income | $49.4 | $20.8 | $87.6 | $32.6 |
| Net income | $43.0 | $16.3 | $74.8 | $25.8 |
| Net income attributable to Photronics shareholders | $27.4 | $10.5 | $50.5 | $18.6 |
| Diluted EPS | $0.45 | $0.17 | $0.83 | $0.30 |
- Q2 revenue rose 28.0% year over year and 7.7% sequentially; six-month revenue increased 26.5% year over year. Q2 IC revenue grew 30.2% year over year, while FPD revenue grew 22.9%.
- Management attributed IC growth to stronger demand and improved pricing, including mainstream masks and high-end logic masks. FPD revenue fell 2.3% sequentially, with weaker mainstream and G10.5+ demand, mix, and yen effects, but remained higher year over year.
- Q2 operating margin was 24.2%, versus 13.0% a year earlier. Q2 results included $7.8 million of net foreign-currency transaction gains; currency movements therefore materially affected reported non-operating income.
Cash flow, balance sheet, and capital
- Six-month operating cash flow was $103.3 million, compared with $58.2 million a year earlier. Capital expenditures were $34.8 million, versus $73.5 million. Company-defined free cash flow, a non-GAAP measure, was $69.9 million versus negative $9.5 million; LTM free cash flow was $126.8 million versus $31.5 million.
- At May 1, 2022, cash and cash equivalents were $329.3 million, total debt was $82.5 million, and reported net cash (a non-GAAP measure) was $246.7 million. Debt was down from $111.7 million at October 31, 2021. Cash included $266.1 million held by foreign subsidiaries.
- Current assets were $630.3 million and current liabilities $186.5 million. Total assets were $1.332 billion and total equity $1.050 billion.
- Six-month financing included $27.6 million of debt repayments, $25.0 million of contributions from noncontrolling interests, and $2.5 million of share repurchases. No shares were repurchased during Q2; $31.7 million remained under the authorization.
Outlook, risks, and unusual items
- The filing directs readers to the Q2 earnings release and presentation for business guidance; it does not provide specific forward guidance in the 10-Q text. Management estimated approximately $65 million of capital expenditures for the rest of FY2022 and stated liquidity should meet requirements for the next twelve months and foreseeable future.
- Capital expenditure commitments were approximately $115.1 million; together with recognized capital-equipment liabilities, the company described $123 million of committed and recognized obligations and expected to fund $96 million over the next twelve months.
- A customs audit at a China operation was ongoing. The estimated exposure was $2.2–$3.7 million; the company recorded a $2.2 million loss in cost of goods sold and accrued liabilities.
- Key risks include foreign-exchange volatility, semiconductor and display industry cycles, supply-chain disruption, COVID-19 effects, geopolitical conflict, and export-control changes affecting China-related business. A 10% adverse movement in relevant currencies was estimated to produce a $34.1 million net unrealized pretax loss.
- Foreign-currency translation produced a $44.1 million Q2 other comprehensive loss; comprehensive loss attributable to Photronics shareholders was $6.1 million, despite positive net income. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Review the separate Q2 earnings release and presentation for the actual guidance and assumptions referenced by the filing.
- Track whether revenue growth, pricing, and margin improvement persist, particularly in IC and China, and how FPD demand evolves.
- Assess the foreign-exchange contribution to earnings and equity, including currency exposures and the distinction between transaction gains and translation losses.
- Monitor the China customs audit outcome, capital spending and equipment commitments, and the timing and availability of cash held overseas.
- Review the impact of export controls, geopolitical developments, supply-chain conditions, and the joint-venture partner’s contractual put rights.