Ladies and gentlemen, thank you for standing by. Welcome to the Photronics Third Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded Wednesday, August 14, 2013. I would now like to turn the conference over to Pete Broadbent, Vice President, Investor Relations and Marketing. Please go ahead, Mr. Broadbent.

Thank you, and good morning, everyone. My name is Pete Broadbent, Vice President, Investor Relations and Marketing of Photronics. We'd like to thank you for joining our third quarter 2013 conference call. Before we begin, I'd like to remind all participants about the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. And thus, any statement we make during this call, except for historical events, may be considered forward-looking and may be subject to certain risks and uncertainties that could cause actual events to differ materially from those projected, including uncertainties that may affect the company's operations, market, pricing, competition, procurement, manufacturing efficiencies and other risks detailed from time to time in the company's SEC reports. These statements will contain words such as believe, anticipate, expect or similar expressions. This call will be archived on our website until we report our fourth quarter 2013 results. Joining us on the call today are Constantine Deno Macricostas, Chairman and Chief Executive Officer; Sean T. Smith, Senior Vice President and Chief Financial Officer; and Dr. Christopher Progler, Vice President, Chief Technology Officer and Strategic Planning. Deno will first provide a brief review of market conditions and our strategic direction. Sean will then provide a comprehensive review of Photronics' third quarter performance. During Deno's and Sean's remarks, they will be referring to slides posted on our website under the Investor Relations link. Deno?

Thank you, Pete, and good morning, everyone. Please turn to Slide 3 in our slide presentation. I'd like to begin by highlighting the successful completion this past quarter of our tender offer for the outstanding shares of our subsidiary, PSMC, in Taiwan. We now own over 98% of the shares. As Sean will explain later, it was an attractive financial transaction for our shareholders. Most importantly, our Taiwan operations are highly strategic for us in serving our key customers, like Micron and affiliates, UMC and Global Foundries. Taiwan is a major center for us - we will invest in high-end capability and leverage our position there to take advantage of growth opportunities throughout Asia. Turning to the results of the third quarter. Revenues were $109.7 million, within our guidance range. IC sales were $84.2 million, up 2.4% sequentially. Growth in IC was driven by increased mainstream sales, up 4.2% sequentially. We capitalized on solid demand for mainstream photomask that grows our customer base. High-end IC photomask sales declined slightly from the second quarter, down 1.9%. I would characterize this as a transitional phase in our high-end business. As we explained in our last 2 calls, we're in the process of bringing on 2 advanced mask writers two e-beam 8000's. We are actively qualifying our 28- and 14-nanometer nodes in logic. We expect to have those tools in production by the end of the calendar year, if not sooner. As we have said before, these writers are critical for 28- and 14-nanometer logic and advanced memory nodes. It will help us to take high-end market share for years to come. Today, we're building the foundation for long-term. We are investing, we believe, well ahead of the competition. In memory, new designs for next-generation devices were delayed. The delay was due to…

Thanks, Deno, and good morning, everyone. I'll provide a brief analysis of our financial results for the third quarter of 2013, also review our balance sheet and cash flows and then provide our outlook for Q4. As Deno mentioned, we successfully completed the tender offer for PSMC and now own 98.1%. In addition to the strategic importance of this transaction, we expect it to be accretive going forward. The minority interest expense for Q3 was approximately $400K since the transaction was concluded in mid-quarter. Had we not acquired the additional 23% of PSMC, minority interest expense would have been in excess of $700,000. Please turn to -- read Slides 5, 6 and 7, which show our sequential and year-to-date IC and FPD performance. Third quarter revenues totaled $109.7 million, within our guided range of $107 million to $111 million. Revenues for IC and FPD photomasks were $84.2 million and $25.5 million, respectively, for the third quarter. Breaking out sales geographically, 59% of total sales were from Asia; 31% from North America; and 10% from Europe. As Deno discussed, high-end global IC sales were somewhat muted during the quarter with sales of $22.9 million, down $400,000 compared to the second quarter. We did experience some delayed tape-outs for memory products due to the improved memory pricing during the quarter, as our memory customers generally continue to manufacture existing devices. We also experienced continued softness with one of our foundry customers due in part to a node migration for which we had not yet completed qualification. We are optimistic in completing this qualification during the current quarter. Advanced FPD sales were $16.7 million, a sequential increase of $200,000. Advanced FPD sales represented 65% of total FPD sales for the quarter. As a reminder, high-end IC revenue consists -- high-end IC revenues derived…

[Operator Instructions] Our first question comes from Krish Sankar with Bank of America.

Sean, just a quick question on the high-end IC sales. It looks like it's not -- last quarter, you guys said you're going to start seeing a pickup, but it didn't quite happen in the July quarter. I understand that one of your foundry customers still like doing a node migration. But I thought that was just a 1, 2 quarter thing. How long is that going to drag on for?

Chris?

Yes, I can make a comment. The current qualification we have with that customer is proceeding well. We remain optimistic that call is going to complete this quarter. At the same time, they are also doing a node migration to 14 nanometers. So we've taken an early start, early advantage of that qualification process as well. So we're actually doing 2 nodes in parallel. Now with this customer, to some extent, it slowed down a little bit completing the first call. But optimistically, that will lead to earlier 14 nanometer, particularly in 2014. So this customer continues to move very quickly. We're working with them, qualifications, proceeding and actually, we have a strong lead on their 14-nanometer qual node as well.

And are they doing 20 and 14 or...

20-nanometer seems to be a node right now. It's being de-emphasize by most of the foundries. So I would say, without speculating too much, that the 20-nanometer node for this particular customer will be fairly minor. And their 14-nanometer node will be a much stronger cadence for next-generation after 28.

Got it. That's very helpful. And then in terms of the outlook, how should we think about the IC flat panel and the high-end IC flat panel in the October quarter versus July?

Chris, typically, the last couple of years, Q4 has been down sequentially compared to Q3 because of the seasonality, primarily related to the mainstream products and the cyclicality of the FPD. We did forecast or project to have increased revenue this quarter. That should be principally driven by high-end applications, primarily IC, without giving specific guidance and probably will be on the latter part of the quarter.

Fair enough. And then one final question. The share count guidance, how do you consolidate -- I think you guys gave some high share count guidance, but it came in much lower. Is that more to do with one of the debt-related thing, or how do we think about it?

We had some -- I'm sorry. You're referring to what we posted on the slide?

Yes. The 77.5 million shares.

Yes. That's fully diluted shares. I think last quarter, we were are at about 76 million and our guidance, it was up a little bit actually based on some option exercises and some conversion of some warrants.

Our next question comes from Edwin Mok with Needham & Company. Edwin Mok - Needham & Company, LLC, Research Division: So Chris or Sean, I mean, it sounds like you guys are pretty confident about capital recovery or improvement on the high-end IC side after you install these new mask riders. Do you read that as kind of your belief that you -- that at least that part of your business can continue to grow into the January quarter, which historically, also should -- could see some seasonality because of the Chinese New Year?

Edwin, this is Deno. We are still very confident going forward, definitely migrants and all-the Elpida and the Rexchip, I think, will benefit tremendously. There's a lot of business there. At the same time, we're kind of qualifying at the 28- and the 40-nanometer nodes. And I do believe the -- all these qualifications flows -- will happen with Micron, we believe very strongly, at the high end, it can accelerate going forward, especially the next fiscal year, definitely. I feel very strong about that.

The entire team is very confident about our positioning with key customers, strategic customers, in the 2 tools coming online. So we still have that confidence that we spoke about in Q2. So we're really excited about our opportunities into next year.

And I guess I'd add one more thing, Edwin. The -- on the memory side, the scaling continues to be fairly robust. You probably saw Micron, our radical partners, announcing on the 16-nanometer Flash memory in July. So there's new planar products rolling out in Flash. Also, DRAM continues to scale. So there's a lot of qualification and design activity as well we're very well-positioned to take advantage of. So we see the roadmap strong. We see our technology portfolio intercepting that right on, and we're very confident we're going to ride the wave of a strong high-end adoption later this year going into next year. Edwin Mok - Needham & Company, LLC, Research Division: Okay, that's helpful. Sean, you mentioned the mask writer that you guys have. Can you update us where you guys are at on those 2 writers, and the date -- what timeframe do you expect them to come online, and how much more time after they come online that do you think you need for your customer to qualify those equipment before you can actually put them into use?

Yes. As Deno mentioned in his prepared remarks, the tools -- both tools have been delivered. And we expect them to be qual-ed and generating revenue by the end of the calendar quarter, if not sooner. Obviously, we are pushing very hard to get them qual-ed into production. And I said in my prepared remarks hopefully, we see some high-end pickup in the second half of the quarter. Edwin Mok - Needham & Company, LLC, Research Division: I see. Okay. That's helpful. On the FPD side, I saw that the mainstream actually picked up a little bit. Is that a trend that we should expect to continue? And what was the driver for that increase?

Yes. It ticked up about $800,000. Not -- high percentage, but not a significant amount, Edwin. I think and typically, it's more on the seasonality side of it. Principally, that -- I think that revenue is generated in Taiwan.

Maybe Chris can answer the question. And I believe the AMOLED and the ultra high definition, it is -- will drive forward the FPD. And the FPD is gaining almost like an IC now. They became more complex, you have the price shift and as of now, it's priced higher, too. So I believe the high end is going to drive the FPD growth. Or maybe Chris can answer, explain...

Sure. Sure, thanks, Deno. The -- on the display side, for sure, ultrahigh def, the 4K displays are driving a lot of the design activity, a lot of smaller transistors and pixels, so that's making the lithography and also the masks much more complicated. The layer counts are going up for those devices as well. At the same time, there's been renewed interest in LCD in general. A lot of companies are trying to push the standard LCD technology even further. So we're seeing design activity connected with that. And AMOLED is a very strong technology. Multiple companies are using it. The scale of that to TV size, I think the timing remains in question. But as far as it's use in the mobile applications, very strong and new features are being added. So the display masks space is very rich and growing from the point of view of high-end and new applications. There's no doubt about it.

One thing further, Edwin, across -- on both segments, in FPD and IC, we saw an increase in mainstream products, which was good for us. In the mainstream side, it was up 4.2% and unfortunately, Peter Kerlin wasn't able to join us today, but he's driving that increase with increased market share gain. Edwin Mok - Needham & Company, LLC, Research Division: Okay, that's helpful. One last question, just on, I guess, cash, right? So do you see there's some cash outlay that you need to put out on CapEx in the coming year because of these 2 tools, or should we expect CapEx to come down in 2014? That's the first part of the question. Second part is, you have this $20 million debt that is due kind of later on next year. What's your intention to do with that?

Okay. With respect to our cash, as you know, I'll note that we've reduced our capital spend or projected capital spend for this year. Some of that cash, that spend that -- is just being pushed out into next year or payments on certain tools. We'll provide guidance for our capital plan for 2013, but we're just going to continue -- I'm sorry, 2014 in December, we are confident in our ability to generate cash to pay for our capital spend. And we do expect next year to generate sufficient free cash flow in excess, as we have over last 4, 5 years, in excess of our projected capital spend. Edwin Mok - Needham & Company, LLC, Research Division: And the debt?

Debt, yes. The debt that's due October of 2014 is a convertible note that has a strike price of $5.08. So it's in the money now. And hopefully, if we hit what we say we're going to do in 2014, it should not be any issue whatsoever.

Now our next question comes from Patrick Ho with Stifel Nicolaus. Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division: On the memory IC side of things, can you give a little bit of color in terms of the transitions that are going on, particularly on the DRAM side, as a lot of the suppliers are converting their capacity over to the mobile and server DRAM capacity. Is that shift also impacting, I guess, some of the near-term revenue flow? And once they get their capacity converted, that's when you could see an uptick again in terms of revenues from that side?

Patrick, this is Chris. Certainly, related to our largest memory customer, there's been kind of a market dynamics shift, as you've said, and also an acquisition for them and they're digesting life of fab capacity and figuring how to integrate products they've acquired into their own portfolio. So that's caused somewhat of a pause on some of the photomask work. On the other hand, the fabs are very busy also on the memory side. And that's probably muted a little bit some of the memory mask demand in the very short term. As far as the trends for memory, I think all the big players, the remaining 3 big players, are pushing very hard on the mobile side to take it down to low 2x nodes, so say 20-nanometer-type nodes very quickly. And I think you're going to see those sorts of capacities ramp pretty fast next year into the mobile space. So a little bit of a pause on node transition and also high utilization in the fabs, but definitely, the memory roadmap in DRAM is pushing hard for the next node. As far as going to a 1x DRAM, the R&D is in place. There's a lot good cell designs for that. There are prototypes and the lithography strategies are established, and we're engaged in those. So I see fairly robust memory node transition cycles, at least for the next 2 to 3 years, and we're directly in the pipeline of those, I believe. Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division: Great. And maybe then moving to the NAND side. Maybe, Chris, on that front, there's a lot of, I guess, varying degrees of how fast the various players are going to transition to 3D NAND in terms of the planar to vertical NAND transition. Big picture from the Photronics side of things. Does that benefit you guys one way or the other in terms of the industry transitions and depending on who's making that transition, or are you kind of agnostic to that industry shift?

I think for memory in general, both DRAM and NAND, the layer counts for device will continue to increase. They've increased for the last 2 or 3 nodes after being static for many years. And they will continue to increase now node over node, mainly due to multiple patterning. So meaning multiple mass to do single layers are going to drive layer counts up or planar or 3D NAND. As far as 3D goes, we are seeing that transition already building masks for vertically integrated NAND, as well as planar. So that transition is real and we're involved in it. The layer counts tend be a little higher for that technology, but the number of critical layers may be a little lower. I think as far as the mask impact, relatively neutral. But a lot of it this still depend on how companies do their 3D NAND. As they build the so-called decks of layers to make 3D, that is one implication for mask count. If they do very, very large, vertically stacked devices, that has a different implication application. But I think the message I want to leave you with is there's not a big difference. Layer count continues to go up for planar and 3D. Multiple patterning is still needed. And the most important thing is the node transitions and the new designs, which we believe will happen in either architecture case, will drive a mass demand for NAND. Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division: Great. Final question. Maybe again, for you Chris, in terms of the foundry side and the qualifications, you mentioned that the activity at 40-nanometer also started to pick up. For many of the foundries, that's a shift over to FinFET. And obviously, a different trend to structure. Can you detail or you can you provide a little bit of color on how their efforts in trying to shift to FinFET, which could be very challenging, how that could potentially push out, I guess, some of your quals or some of the work you're doing on that front simply because that's a very challenging transition for the foundry players going from their current structures that they're doing now to 14 nanometers, which is expected to be FinFET?

I think we have been a little surprised at how aggressive the broad foundry community is going after the 14-nanometer and the FinFET style front end. It has been aggressive in our view. From the point of view of that being very difficult to scale and manufacture and volume manufacturing for some of the foundries, we are not that concerned about it because it'll give more lifetime to the previous node, which is a good thing for us. 28-nanometer in particular, we think, still has a fair amount of lifetime. The early adopters will do 14-nanometer, and everybody is chasing the FinFET front end. But I believe also founders are looking at parallel pads as well because they understand that type of transistor may take a while to get acceptable yield. So I think we see that aggressive move to FinFET, but on the other hand, I don't think that's going to be a slowdown because it'll just extend the previous node further. And there'll be maybe another Micro extension, 20-nanometer, both may come back a bit more strongly as a backup plan.

[Operator Instructions] Our next question comes from Andrew Masuda with D.A. Davidson. Andrew Masuda - D.A. Davidson & Co., Research Division: This is Andrew Masuda calling in for Tom Diffley. Sean, I was wondering if you could maybe talk about the mainstream business and just what drove the strength in the quarter and how you guys look at this segment in the October quarter?

Andrew, the mainstream segment was -- increase was broad-based in Europe and in the U.S. and Asia. It was just a lot of nuts and bolts servicing to customer, but it did pick up, and we do believe that's some share gain. And as you know, it's very profitable in the cash strong part of our business. Typically, without giving specific guidance for Q4, we do see some softening in primarily in U.S. and Europe because of the seasonality that I've mentioned in my prepared remarks. Europe shuts down for the a month or so and a lot of vacations are taken in August in the U.S. So we're still very confident about our long-term prospects there. Mainstream essentially bottoms out at the end of 2012 and it's been improving, albeit slightly, since then. So we're very confident about our ability to continue to service the customers, which are many. We have over 600 customers. So we do speak a lot about -- quite a bit here about the high-end, high-end prospects, but the mainstream is really our cash cow and it allows us to invest for the future. Andrew Masuda - D.A. Davidson & Co., Research Division: Okay. And then just maybe if you could provide a little bit more color on when you guys expect to see a material benefit from the Micron-Elpida merger?

Over to Chris? Chris, can you...

I can make some comments. I mean, it's -- we're not really giving specifics on that right now. I think we would just like to say that we are working very closely with Micron through our joint venture on photomask technology. Our joint venture is engaged on the Elpida products now. They are Micron fabs, and Photronics is engaged through that as well with our joint venture. So we think 2014, as Micron starts to transition some of their bid sales to a different processes, that will be a likely time where we may see some benefit. Perhaps sooner, but I think to speculate further on the details would not be appropriate now. But we are engaged and qualifications are ongoing, and Micron is in the process of taking firm control of those fabs, as far as we can tell.

[Operator Instructions] I'm showing no further questions. I would now turn the call back to management for closing remarks.

I'd like to thank all the participants. I appreciate your time, and I wish you a good day. Thank you.