Caesars Entertainment Q2 2024 Earnings Call Transcript

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May 22, 2024

There are 6 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to Photronics Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, this conference is being recorded Wednesday, May 22, 2024.

Operator

I would now like to turn the conference over to Rachelle Furr, Chief Administrative Officer. Please go ahead.

Speaker 1

Thank you, Olivia. Good morning, everyone. Welcome to our review of Photronics' fiscal 2024 Second Quarter Results. Joining me this morning are Frank Lee, our Chief Executive Officer Chris Progler, our Chief Technology Officer and Eric Rivera, our Inter Chief Financial Officer and Chief Accounting Officer. The press release we issued earlier this morning together with the presentation material that accompanies our remarks are available on the Investor Relations section of our web page.

Speaker 1

Comments made by any participants on today's call may include forward looking statements that include such words as anticipate, believe, estimate, expect, forecast and in our view. These forward looking statements are based upon a number of risks, uncertainties and other factors that are difficult to predict. Although we believe the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward looking statements after the date of the presentation to conform these statements to actual results. During the course of our discussion, we will refer to certain non GAAP financial metrics.

Speaker 1

These numbers are useful for analysts, investors and management to evaluate ongoing performance. A reconciliation of these metrics to GAAP financial results is provided in our presentation materials. At this time, I will turn the call over to Frank.

Speaker 2

Thank you, Michelle, and good morning, everyone. 2nd quarter sales increased slightly from the Q1 as a positive seasonality trends were mostly offset by temporary market softness following the Chinese New Year holiday and the impact from earthquake in Taiwan. On April 3, a major earthquake hit Taiwan, where we have 3 manufacturing facilities. I'm happy to report that our people are safe and there was no significant damage to our sites or equipment. The strength of the earthquake and following aftershark impact our production through to downtown as we must investigate to ensure there is no damage to our facilities and manufacturing equipment.

Speaker 2

In addition, we must repair or reject masks that were in process at the time of the events. Our IC and FPD teams in Taiwan are experienced in dealing with these events and nearly all tours will fully recover within a few days. However, the loss of production time and in process inventory results in a reduction in sales of approximately $3,000,000 Order rates at the beginning of Q2 was strong, continuing the positive trend we saw at the end of Q1 and consistent with the high order rates we typically see ahead of the Lunar New Year holiday. Following the holiday, we usually see increasing bookings as customer return to work. This year, the rent in order rates was lower than our expectation.

Speaker 2

In addition, the timing of earthquake following the holiday further reduced booking, causing April revenue to be solved. Since then, order rates have increased and we are entering the 3rd quarter with higher confidence. These factors contribute to sales of $270,000,000 in the 2nd quarter. IC sales improved quarter over quarter via FPD decrease. Compared with the Q1, gross margin was similar and operation margin was slightly lower as we had higher R and D expense, driven by an increase in qualification activity.

Speaker 2

As a result, reported EPS was $0.58 on an adjusted base, EPS was 0.46 dollars Cash flow was good during the quarter and we further strengthened our balance sheet to position us to invest in the multiple growth opportunity we have especially in IC. I would like to recognize the dedication of the global Photonics team this quarter to achieve these results, especially those in Taiwan that respond to the added challenge. Turning to the market, reversing the trend seen over the previous three quarters, our IC mainstream sales increased, mainly driven by market share gain. High end was down primarily due to lower U. S.

Speaker 2

Demand. Consistent with most of the end users, we see the overall semiconductor environment gradually improving into our physical Q3 and Q4 across most IC segments and regions. INFPD was softer as MRI design demand has not yet ramped ahead of new premium smartphones that will soon begin production ahead of 4 launches. Longer term, we remain optimistic regarding positive demand trends for both IC and APD. IC customers in Asia continue to migrate to smaller design nodes, including 22 and 28 nanometers.

Speaker 2

We are well positioned to capture this business. We also expect megatrends such as AI to drive chip design activity to handle AI workloads and edge processors. We expect a wide range of IC types to be developed in support of this AI ecosystem from GPU, CPU and ASIC to high band memory and power electronics. We also continue to expect trends in supply chain regionalization to drive market demand, for the mass demand in support of new fab. For display, despite near term softness in demand, we remain optimistic long term.

Speaker 2

Mobile device continue to be introduced with new displays that contain advanced features enabled by higher value photomask. In addition, panel makers continue development efforts to extend AMOLED technology into bigger displays such as tablets and laptops. We will soon see AMOLED produce our G8.6 panels. Our FPD mass solution are reliant on PON for new design, for new display R and D cycles and the most demanding mass production of advanced displays. Overall, we maintain an optimistic long term outlook for mass demand and see many positive factors that support multi node growth trends across Asia, U.

Speaker 2

S. And Europe. We believe our strong customer relations, including long term purchase agreement, coupled with leading technology and high output capacity should allow us to outgrow the photomask industry. As we do, our proven ability and commitment to keep costs low should enable us to expand margins and generate strong cash flow, allowing us to continue investing in growth. At this time, I will turn the call over to Eric to review our Q2 results and provide Q3 guidance.

Speaker 3

Thank you, Frank, and good morning, everyone. 2nd quarter revenue of $217,000,000 was slightly higher than the Q1. There were headwinds that limited growth in a period that is typically up on seasonality, including the Taiwan earthquakes and soft demand following the Chinese New Year. IC revenue growth was mixed. Quarter over quarter improved as robust mainstream demand more than offset high end weakness primarily in the U.

Speaker 3

S. On a year over year comparison, IC was down as strong high end volumes shipped to foundries in Asia were more than offset by lower mainstream demand. Order rates at the beginning of Q3 give us confidence for the upcoming quarter and we remain confident on the long term outlook for IC portal mass demand. FPD revenue was lower sequentially and year over year with softness in both high end and mainstream. Seasonally soft high end trends were heightened due to the earthquake and FX headwinds.

Speaker 3

Looking into the 3rd quarter, demand for mobile display masks is expected to pick up on seasonality trends ahead of anticipated fall launches of new premium smartphones. Gross margin was 36.5%, essentially the same as the Q1 and down from last year, primarily due to lower premium charges. The resulting operating margin was 25.8%, down from last quarter last year. Operating expenses were higher this quarter due to increased R and D as we had a high level of qualification activity. This bodes well for future demand as most qualifications result in incremental revenues.

Speaker 3

On that note, on the IC side, we process qualification masks from EUV and sub-fourteen nanometer through midrange and mainstream nodes in logic and memory. We also plan to enter qualifications of our new MultiBee mass writer in Q3, representing Photronics' commitment to the highest end of IC mask making. On FPD, we saw increasing utilization of our advanced phase shift mask indicating the higher value lithography processes under development by our customers as Frank highlighted. Net income in the quarter was $36,300,000 or $0.58 per diluted share on a GAAP basis. After adjusting for non operating FX gain, non GAAP net income was $28,700,000 or $0.46 per diluted share.

Speaker 3

We generated 76 $500,000 in operating cash flow and CapEx was $20,000,000 in the quarter. We still expect total CapEx of $140,000,000 in 20.24, primarily in both high end and mainstream IC to address anticipated demand growth while ensuring we're increasing our return on invested capital. We ended the quarter with a cash balance of 539,200,000 dollars short term investments of $20,700,000 and debt of $21,800,000 allowing sufficient liquidity to fund investments in organic growth. Before I provide guidance, I'll remind you that our visibility is always limited as our backlog is typically only 1 to 3 weeks and demand for some of our products is inherently uneven and difficult to predict. Additionally, the ASPs for high end mass sets are high and as this segment of the business grows, a relatively low number of high end orders can have a significant impact on our quarterly revenues and earnings.

Speaker 3

Given those caveats, we expect the 3rd quarter revenue to be in the range of $221,000,000 to $229,000,000 We expect positive photo mass demand momentum that was interrupted by the Chinese New Year to resume and continue through the Q3. Based on those revenue expectations and our current operating model, we estimate non GAAP earnings per share for the 3rd quarter to be in the range of $0.53 to $0.59 per diluted share. This assumes an operating margin of between 28% 30% as we continue to keep costs under control and maximize profitability. We faced some unique challenges in the second quarter. Despite this, we achieved sales slightly above Q1 levels and were able to maintain good margins.

Speaker 3

Positive order rates as we exited the Q2 are encouraging for our Q3 and full year outlook. We continue to perform well and build on our solid financial foundation to profitably grow and create shareholder value in 2024 and beyond. I'll now turn the call over to the operator for your questions.

Operator

Thank And first question coming from the line of Tom Diffely with D. A. Davidson. Your line is open.

Speaker 4

Hi. This is Linda Muali on behalf of Tom Diffely. Thank you for letting us ask questions this morning. So to start, very sorry to hear about the impact of the earthquake and we're glad to hear everyone there was safe. So it's a good thing to hear.

Speaker 4

So my first question will be on that. If I heard you correctly, the impact on the quarter from the earthquake was $3,000,000 or was just that was that just on production and inventory? And maybe if you could clarify and quantify how much the earthquake impact was and how much of it is embedded in your guidance for the July quarter? Thank you.

Speaker 3

Linda, thank you for asking the question. This is Eric. So we had a $3,000,000 impact like we mentioned related to the earthquake. Most of that was production loss time. In terms of materials or anything else, it was not significant.

Speaker 3

The majority of it was production last time.

Speaker 4

Okay. And so not in go ahead.

Speaker 3

I'm sorry, go ahead. Yes. So with respect to is that embedded in our forecast? That was a one time event for us as the earthquake just impacted this quarter.

Speaker 4

Okay. I see. Thank you. And still on the earthquake impact, I have I might have missed it, but are you is there an impact on the CapEx plans for this year? Or are you still thinking the $140,000,000 that you had mentioned last quarter?

Speaker 4

So I'm thinking given the repairs that might have to take place as you're still investigating, would that have any change on that? And what could be reflected in FPD?

Speaker 3

We don't expect that to change our $140,000,000 expected CapEx for the year.

Speaker 4

Okay. So could you remind me again what the split would be FPD and IC?

Speaker 3

It's mostly IC. There is some FPD there, but it's mostly IC.

Speaker 4

Got it. Thank you for the clarification. And going to overall revenue, it remains around 5% below your prior year levels. And you mentioned that the rent in order rates was lower than expectations following the Lunar New Year. Could you walk us through what is happening here?

Speaker 4

Why do you continue to see such low levels of growth? And are you seeing impacts primarily from end markets weakness, share losses, given ramping Chinese competitors or delayed new programs?

Speaker 2

Dita, thank you. In the past, a lot of customers, like the Glass customers, they tip out before the New Year holiday. So people can take off for the holiday and we see very heavy booking, both in high end and mainstream before the holidays. And normally after the holiday, the order recovers step by step, but this year it seems to be slower than the past. And so we still have very strong 1st 2 months in the quarter, but mainly because of the order before the New Year.

Speaker 2

And in the month of April, the new order come in the rate of new order come in kind of slow, especially in the high end. So it do impact the April output. And the market seems to be very volatile. It's not quarter by quarter, it's a month to month, especially in the higher because the higher order, every single set is a much higher price. So the impact is bigger than the mainstream business.

Speaker 2

However, at the end of April and going into Q3, we do see orders start to recover and based on the seasonality, Q3 typically is a good month, is a good quarter for Tabak. So we are expecting the higher order especially where reached to a good level in this quarter.

Speaker 4

Great. Thank you for that color. So it seems like high end is expecting to be doing well in the upcoming quarters. So if you think about mainstream, you mentioned a softer demand environment this quarter. Is that what you're expecting in the next quarter as well?

Speaker 4

And with the softness there, is it in certain segments or across the board? Maybe give us more color on how the demand environment looks like there, maybe current lead times and maybe touch on pricing as well?

Speaker 2

In the mainstream segment, because a lot of new fab, especially in China, they are ramping up in the mainstream business. So compared to the previous quarters, mainstream demand actually very consistent and increasing quarter by quarter. And in the past several quarters, we do increase our capacity to support our mainstream business. In previous 2 years, because our capacity limitation, our data for mainstream product kind of relative long. And so we did not take as many mainstream order as we can.

Speaker 2

By starting this year, we do have some mainstream new capacity and we start to take more order and that reflect in our growth in the mainstream IC Business.

Speaker 4

Great. Got it. And then maybe, Eric, to looking at gross margins, quite flat from Q1 and done from last year. And I believe you mentioned it was due to some premium charges, lower premium charges. Could you touch on that?

Speaker 4

And then what are you thinking for next quarter?

Speaker 3

Sure. So yes, as you mentioned, our premium charges are much lower this year than they were last year. And that explains the decrease in revenue and margin and our margin. With respect to our margin levels for the rest of the year, I don't expect them to be much different than what they are at the current level.

Speaker 4

Okay. So even if the demand environment changes, are you still expecting the same levels?

Speaker 3

I'm sorry. Say again, I'm sorry.

Speaker 4

Even expecting an upturn on the horizon, are you thinking the same for next year and second half this year as well?

Speaker 2

The premium may not come back. However, because the better product is more high end, especially in the 22 nanometer and 28 nanometer product. Our branded ASP do increase quarter by quarter. So we compare with last year, even premium disappear, our overall gross margin actually increased quarter by quarter. So it's nice to have premium charge, but we know it's not a long term event.

Speaker 2

So we put a lot of efforts to improve our product mix such that the branded ASP can be higher.

Speaker 4

Awesome. Well, thank you so much for your time today.

Speaker 3

Thank you, Lita.

Operator

Thank you. And our next question coming from the line of Erik Recht with Portree Island Advisory. Your line is open.

Speaker 5

Thank you very much. Good to hear about the orders recovering at the end of April and looking good and going into May and the minimal impact despite the earthquake. And I guess the first question is on the earthquake. I'm not too familiar with how photomasks might fare in a disruptive earthquake like that. Do you expect that there was some damage to photomasks that were being used in the market at the time and that that should lead to

Speaker 2

some photo masks needing to

Speaker 5

be scrapped or serviced and that could lead to a potential bump in future quarter revenues?

Speaker 2

Yes. During the earthquake, most of our equipment has a self protection system. So, if the earthquake is over a certain scale, the tour will shut down automatically to protect the tour. And at the same time, if there are any photo masks in the process inside the tool, that photo mask will be considered on complete. So it cannot continue the process, it has to be reject.

Speaker 2

And so the photomask, for example, if it's in a cleaning process, then we may have to check is any defect or contamination on the mask and some can be repaired, some cannot be repaired, we have to reject. So none of the damage or impact mask will go to customers. However, there will be reject or repair in the production line.

Operator

Thank you. And ladies and gentlemen, there are no further questions at this time. I will now turn the call back over to Mr. Frankly for closing comments.

Speaker 2

Okay. Thank you for joining us this morning. We had a slower than expected start to 2024 and the earthquake in early April impact our results. Yet, we remain optimistic that we can achieve another year of solid results. The team is performing well.

Speaker 2

The long term outlook for our market is supported by positive megatrends such as AI and we are in a good position to benefit due to our global presence and advanced technology. I look forward to updating you on our progress. Thank you.

Operator

Ladies and gentlemen, that concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line at this time.

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Earnings Conference Call
Caesars Entertainment Q2 2024
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