Good day, and thank you for standing by. And welcome to the Medtronic's Fourth Quarter Fiscal Year 2025 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. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Ted Moreau, Head of Investor Relations. Please go ahead.

Thank you, operator.

Good morning, everyone. Welcome to our review of Photronics' fiscal fourth quarter 2025 financial results. Joining me this morning are George Makrokostas, Chairman and CEO Eric Rivera, CFO, Frank Lee, head of our Asia operations and Chris Progler, CTO. The press release we issued this earlier this morning together with the presentation material that accompanies our remarks are available on the Investor Relations section of our website. This call will include forward-looking statements that involve risks and uncertainties that could cause Photronics' results to differ materially from management's current expectations. We encourage you to review the notice regarding forward-looking statements contained both in today's earnings release as well as our most recent SEC filings. During the quarter, we will be participating in the New York Summit next week, and the Needham Growth Conference in January. I will now turn the call over to George.

Thank you, Ted, and good morning, everyone. We delivered strong financial results with sales of $216 million exceeding expectations and increasing 3% sequentially. The major positive in the quarter was record high-end IC revenue, led by The US and Asia. Non-GAAP diluted EPS also surpassed guidance coming in at 60¢ per share. During the quarter, we recognized a tax valuation allowance reversal, reflecting an improvement in our US execution and outlook, which Eric will elaborate on. As we look to 2026, we will continue to leverage our operational strengths and geographic footprint spanning 11 production facilities to continue to deliver high-quality photomasks. As previously communicated, we are currently executing strategic geographic expansions at existing facilities, reinforcing our position as a leading merchant provider of photomasks. These initiatives are expected to enhance the revenue contribution from these facilities, broadening and further diversifying our geographic revenue mix. Our investments are aligned with two industry trends. First, advanced node migration. Progression to more advanced nodes requires more mask layers per IC device and finer resolution mask features, driving increased mask demand and higher mask set ASPs. Our investments will increase our exposure to higher-end nodes in The US and in Korea. Second, regionalization. Semiconductor manufacturing continues to diversify globally, including meaningful reshoring of production in The US. We are a market leader in The US and will pursue numerous higher-end opportunities through our US investment plans. More specifically, a year ago, we announced our capacity expansion capability extension at our Allen, Texas facility. We expect to begin tool installation in the coming months with customer qualifications in the springtime frame and initial revenue later in 2026. In Korea, our cleanroom expansion is underway, with equipment installation beginning in 2026. Customer qualifications for eight nanometer are expected through fiscal 2027 with revenue contribution beginning…

Thank you, George. Good morning, everyone. Fourth-quarter revenue exceeded expectations at $216 million, increasing 3% sequentially, though declining 3% year over year. IC revenue of $157 million declined 4% year over year. However, we experienced a meaningful mix shift towards high-end shipments which reached record levels in both absolute dollars and as a percentage of total IC revenue, at 42%. High-end IC strength reflects strong order patterns globally, including in The US, now representing 20% of total revenue, where reshoring efforts continue to create a favorable demand environment. Meanwhile, our mainstream IC revenue declined 12% year over year, due to several factors. The declines are broad-based geographically, because of market conditions. However, the mainstream IC decline deepened by recent geopolitical impacts across mainstream customer segments, primarily in China. Additionally, we strategically redirected mainstream capacity, including capabilities obtained from end-of-life tool replacements towards higher-end opportunities. Turning to FPD. Fiscal Q4 revenue of $58 million declined 1% year over year due to timing of order patterns. As we look to fiscal Q1, the temporary FPD slowdown that emerged later in Q4 persisted through much of November, but has since abated with recovering order levels. Gross margin improved to 35%, exceeding expectations driven by a favorable product mix. Operating margin of 24% also exceeded our guidance range. Diluted GAAP EPS attributable to Photronics shareholders was $1.07 per share. We experienced a favorable $16.8 million benefit related to the reversal of historical US tax loss valuation allowance. We had recorded this tax valuation allowance as the benefit was previously deemed unrealizable. Given the improved performance and outlook of our US business, US GAAP recorded a reversal of this tax loss allowance resulting in the positive $16.8 million results to GAAP net income. Excluding foreign exchange impacts, and a deferred tax valuation allowance reversal, non-GAAP…

Thank you. And wait for your name to be announced. And our first question coming from the line of Thomas Robert Diffely with D. A. Davidson. Your line is now open.

Hi. Good morning. This is Linda on for Tom. Thank you for letting us ask questions. My first question is on the market share. Now that your largest competitor just went public, what is your relative size and or trends in share? Any color there will be very helpful.

Could you repeat the question? I'm sorry.

Oh, can you hear me now?

Yes. We can, but we didn't hear the question clearly enough.

Oh, okay. Yeah. So my first question was on market share. So with your largest competitor being public now, I was wondering how you're viewing your relative size and trends in the market share versus your competitor.

So our market share thank you, Linda. This is Eric. So we see the market share being as we had perceived in the past. The fact that Texan now is a public helps us get a little bit more detail, but we see our market share being exactly what we thought before. And I see they have a little bit more they have more market share than we do. For sure, when you consider our FPD business you know, that they don't participate in. We're about the same size when you combine them.

So since I have an FPD and different elsewhere, so TxSend doesn't participate in FPD? Photronics does. Texan is larger has a larger market share than Photronics does. And I see. And I see. And I see. However, when you consider our FPV business, we're around the same size.

Okay. Got it. And then looking at the overall competitive environment, what is your view on the overall health of the environment? Yeah. Any comment there would be helpful.

Yes. We are seeing a lot of node migration and especially in The States. In the past, we have our major operation facilities in Asia. But right now, with the reshoring of the semiconductor industry in The United States, Our Boise site, which has the high-end capability, we are the only high-end merchant mass supplier in the country, and we see growing high-end demand in the country, we believe we are on the right track to capture more high-end shares. So this also answers your first question that our market share with the growing US demand, especially in the high-end and trusted product, we believe our market share will continue to increase. And it will be supported by our investments in our Allen facility as well. Which is, you know, supporting the reshoring efforts as well.

Oh, thank you. That makes sense. And then I also wanted to touch on the mainstream business. You say there is continued softness there, but you're seeing it stabilizing. Just curious if you're seeing any kind basically, what you're seeing on the supply and demand side of things. And yeah, how that has impacted margins and maybe how that is impacting your capital spend for next year.

Our mainstream market, we are referring to many our mid mainstream business in China. As most people are aware, that in China, that due to the geopolitical issue. They do have some made in China policy. So there are quite a few new local mass houses in China. However, as a market and technology leader in China, we try to differentiate ourselves from our local competitors. We are focusing more on our anchor key customers. We build relationships with these key customers with better product quality support and so on. And, also, we utilize our capacity better mainly for a more higher value product mix. So I think, there is some competition in the mentioned especially the low end of the mainstream. But with our capability, and also with our tour capacity and so on, we are moving ourselves to a higher value product mix.

Great. Thank you for your time this morning.

And thank you, Linda.

Thank you. Our next question coming from the line of Christian David Schwab with Craig Hallum. Your line is now open.

Great. Thanks for taking my questions. Fantastic quarter. So just a follow-up on the mainstream. Is it fair to say that the new market entrants in China you know, on the I guess, higher the less complicated note. It is where you're you're seeing I would assume, increased pricing competition. And so as we think about that business and your shift to higher mix should we think about that business potentially being under any gross margin pressure? Or should we assume we're gonna focus where quality and support and better products stand out. And the growth rate there could be a little muted. I guess I'm trying to kinda put all the pieces of the puzzle together.

Okay. As I reported in China, right now, are very strong demand for our high-end product, especially in twenty-two and twenty-eight nanometer technology. So for this technology, there are many, many layers in one set of devices. So, our capacity in our China facility, we are using most of the capacities. For the high end, not necessary for critical layers. But also for semi and noncritical layers. So those step critical and those are noncritical or semi-critical layers. Actually, they have a much better ASP than the so-called typical mainstream. So in summary, our capacity needs to be optimized and so higher value for higher gross margin and profit margin is our the way we are doing business and the way we are working on the market.

Great. That's clear. Thank you for that. And as GA adoption and flat panel display eventually begins to broaden out into more main applications. You know, your ASPs there are I believe they are anyway, materially higher. Given the layer count When would you expect that to begin to be a meaningful percentage of that business? Is that something that happens in '26? Fiscal year twenty-six, or is that something that's in '27 and beyond?

Yeah. Hi. This is Chris. Yeah. So the g eight eight point six is at the early stage of production ramp. There's only a few fabs that are running that, but we're seeing additional fabs come online, actually, in multiple regions. For g 8.6 display. The application space is just as you said, it's larger format OLED displays and IT automotive, medical applications. So the application space is fairly broad. So we do expect that to be a strong opportunity for us because we have a leadership position there. As far as when it will have material impact on revenues and things like that, we don't really wanna talk about that here. But, I think 2026, you'll see gradual increases in the component of our display revenue driven by g 8.6. Think that's all we'll probably would say at the moment.

Okay. That's great. And then, you know, as we're adding new capacity and geographical expansion and replacing end-of-life tools I know that brings new capabilities and probably a different pricing structure. Is there any puts or takes to gross margin over about a year basis given those significant investments that we should be thinking about?

Hello, Christian. Eric here. So as we invest in our tools, we do so understanding the market and where we see growth being. And basically, we do expect to have increased revenue as a result, contributions to gross margin. Our CapEx also includes purchases of end-of-life tools. Which provide also increased capabilities. So we do expect to see increased revenue. Increased depreciation as well associated with it. We expect our gross margins to continue at the same rate. And perhaps grow as we make these investments.

Fantastic. This is George. It's no different than the past. I mean, we've always had end-of-life tools in the past and replacing them, etcetera. I mean, the new tools have better throughput, better capabilities, etcetera. So it should not be anything material. Changes as far as the depreciation is associated with the new tools.

Great. Fantastic. And then have you guys my last question here. Sorry for asking so many. As we ramp up the Allen Texas facility Could you give us an idea of like, revenue potential? I need to know exactly where you could give capacity. I could figure it out. But, you know, what should we assume the revenue capabilities of additional US capacity over a multiyear time frame could add to the company? Is that fair?

I understand the question, Christian. So let me address the question and into what I can I don't wanna go to a level of granularity where we're disclosing how much revenue we're gonna have by site. So, you know, what I can say is that as a result of these investments, we're gonna go into the sort of the mid-range nodes or the higher the higher end of the main depending on how we define that. Right? And we're gonna have more capabilities is gonna have incremental revenue and profitability to Photronics in The US. We expect gross margins to improve. We expected revenue to start on these investments towards the second half of the fiscal year '26. And we expect those to continue on to '27 when we're fully ramped.

And one other point, Christian, we might make this kind of a knock-on effect to this Allan project and that it'll free up more capacity in our Boise site, is our most leading-edge facility because some of those mid-range masks we run there. So as Allen Ramps, Its Revenue, Of Course, Will Go Up. But The Boise will have more capacity to deploy for higher-end applications. So it's really a combination net benefit of both. Sites as far as the opportunity.

Great. Great. No other well, I let me sneak one more question in. Given the significant reshoring activities, that are potentially gonna be going on on a multiyear basis here in The United States. There are certain manufacturers who are gonna be adding additional capacity to source photomasks from outside of The United States, which some applications did may seem to me that they might be cost prohibitive to get all the way over here. Do you have any idea or aspiration that you're willing to share with us? What you think the opportunity for captive guys going the merchant market over a multiyear time frame, or is that am I just stating the obvious because we're adding capacity everywhere? But if there's any clarity on the movement from captive to merchant that you're anticipating other than just semiconductor unit growth. Any clarity there would be helpful, I think.

So to be clear, is your question, do we expect the captives to be the merchant market effectively competing with us, or did I misunderstand that?

No. I'm saying giving up market, you know, giving market share, looking to merchant market suppliers versus doing it internally. Do you think that that is a trend that could come to the marketplace in particular The US geography?

Was gonna say, I mean, unless it's a capability issue, issue that they can't get it here, I mean, typically, the cycle time is a big issue. Would wanna have a more locally sourced for, you know, for cycle time reasons. A more locally sourced mask shop. So I think we have the local advantage. I think the issue could be, if there was one, would be under capabilities. But let some of the other folks on the team here chime in.

And I think we can broadly answer the question that we've seen over the last year, maybe a little longer, the tendency of the captives overall as a group to look at more outsourcing opportunities. And that's not just in The US. That's in other regions as well. So, generally, we're seeing an increase in interest and desire for the captives to outsource. This could be less critical layers of very advanced sets. It could be memory products that historically were done internally, but let's say broadly, there's more outsourcing opportunity. Particularly related to Photronics, we're well positioned in regions with that have some of the largest captives. And also some of the largest fabs. So we do expect to capitalize on that increased outsourcing trend of captives. I think beyond that, we won't be more specific at this time. We do see it as an opportunity.

Yep. Fantastic. That was extremely helpful. Go ahead. I'm sorry.

I'll just add something quickly that I guess, stating the obvious. Right? The more regionalization trends essentially, there'll be more fabs making more wafers. They'll need more photomask. So the trend regionalization trend is only positive for merchant photomask manufacturers like Photronics.

Yep. A 100%. Get it. No other questions. Thank you.

Thank you, Christian.

Appreciate your questions.

Thank you. Our next question coming from the line of Gowshihan Sriharan with Singles Research. Your line is now open.

Thank you. Good morning, guys. Can you hear me?

Yes. We can, actually.

Morning. Good morning. Just on that I'm glad you brought up that outsourcing issue. How do you guys think about the outsourcing, increase in sales about how you think about pricing and margins on those layers of relative relative to traditional mainstream IC?

Well, high end has higher ASPs. Higher ASPs are good. They generally have a higher margin. With them. So any outsourcing that comes out of the captives would generally be on the high-end areas.

And generally speaking, the captives, you know, when they're outsourcing, at least my experience is, they pay. I mean, I don't wanna say a, you know, a huge premium, but they're definitely not, bottom fishing for the, you know, for what the merchants can give them. Typically, it's, you know, they're outsourcing and they need it and they're paying a fair price. So I don't see them being overly cost-conscious if I'm making sense.

Gotcha. Thank you. The first question was, we you talked a few quarters about how the customers were in holding patents. Because of tariffs, geopolitics, Setting aside Q1, are you seeing any change in the mix of conversation you're having more long-term planning discussions that would tell you about the sentiment that is quietly improving, under the surface.

Okay. So overall, with respect to the export restrictions, I think that's what you're referring to. Mhmm. Or and or the tariffs. I guess that the tariffs are both of them. So we're seeing a little bit more, you know, easing of that, you know, I think as you said, customers are customers are, you know, have more understood the landscape and as a result, they're able to plan better and as such order. Now that's that is true for most areas. Perhaps in China, maybe it still remains the same, the issues that you've just described. But for the rest of the world, I think customers have a good plan of where they're gonna do their orders. And as a result, we can we're there to benefit from that. Does anybody wanna add?

I guess we can also say the two projects we've announced, the one in The US and the one in Korea were based on longer-term, both short and longer-term conversation with customers on their future demands and the opportunities. So those projects came out of, I would say, a more robust longer-term opportunity dialogue with key customers. So we are seeing an increase in that and we're acting on it appropriately by making the right investments in these projects.

Yeah. Makes sense. And the high-end IC grew nicely in Q4. How concentrated is that growth towards a handful of programs customers And what would you see in the pipeline that gives you confidence that this becomes a broader, more diversified high-end run rate for the rest of fiscal 26.

This is Chris. Yeah. I can make a few comments. I think the high-end growth was basically from our existing core customer base. There are a few new customers. Mostly our core customer base that expanded production and capacity as well. So that was, memory customers, foundry logic probably being the strongest. And, recovery in Asia. So it's broad-based. It's a broad product mix coming out of foundry and memory. And it's our existing mostly our existing customer base, but more robust order patterns that match up to their improving demand cycles as well. So we think it's sustainable. It's consistent with the market generally improving, and we're well positioned with some of the stronger IC players. So we do think it's sustainable. And if anything, we see more opportunities there in the high end for sure.

Gotcha. Thank you, bud. And I'll just make this my last question. On Korea specifically, with the capability extension and an increased exposure to the leading-edge chips, How does the commercial model in Korea compare to the US are the customers inclined to sign longer-term agreements, or is it a more transactional kind of quality work?

We don't want to be very specific on this one. But as Chris just mentioned, our customer especially the advanced logic, foundry customer, they continue their outsourcing policy not necessary for a mature node but go into a high end and more higher end. So, I think even there are no long-term agreements, but the trend and is continue. So, we do have a lot of conversation and communication with the customer about their low max and their outsourcing demand. And that's one of the reasons we are doing the courier side capacity and capability, expansion.

Thank you, guys. I'll take the rest offline.

Thank you, Gowshihan.

Thank you. And I'm showing there are no further questions in the queue. I will now ask a callback over to Ted for any closing comments.

Well, thank you for joining us today. We really appreciate your interest in Photronics. Look forward to catching up with everyone throughout the quarter. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.