Photronics, Inc. · NASDAQ:PLAB
Photronics — Investor Day (April 2013)
74 slides from Photronics's investor day presentation, Apr 3, 2013
Slide 1: Photronics, Inc. Analyst / Investor Day
Photronics, Inc. ANALYST / INVESTOR DAY WEDNESDAY, APRIL 3, 2013
Slide 2: Safe Harbor Statement
a ee Safe Harbor Statement During this presentation, some of our comments may contain projections or other forward-looking statements regarding future events or the future financial performance of the Company and/or the industry. We wish to caution you that such statements are predictions and contai
Slide 3: Reconciliation of GAAP Net income to EBITDA
PHOTRONICS, INC. AND SUBSIDIARIES Non-GAAP Financial Measure Reconciliation of GAAP Net income to EBITDA (in thousands) (Unaudited) Three Months Ended January 27, January 29, 2013 2012 GAAP Net income (a) $ 2,859 $ 4,841 Add: interest expense 1,887 1,781 Add: income tax expense 1,742 3,321 Add: depr
Slide 4: Analyst / Investor Day Agenda
a Analyst / Investor Day Agenda Welcome, Introductions, Opening Remarks Deno Macricostas, Chairman & CEO Investment Highlights Sean Smith, SVP, CFO Dr. Chris Progler, VP, CTO and Strategic Technology Planning High-End IC Dr. Peter Kirlin, SVP, U.S. and Europe FPD Market Dr. S.H. Jeong, President and
Slide 5: Welcome
Welcome Constantine “Deno” Macricostas Chairman & CEO
Slide 6: World Class Management Team
a World Class Management Team Significant Industry Experience Years Years, wth in Name Title Photronice Industry Experience Constantine Macricostas | C'"™="* 43 52 | edssueceh, GRBIT Geeneme S.H. Jeong, Ph.D. oma 15 31 > oo Peter Kirlin, Ph.D. one 6 27 Entegris @ atm President, _ Frank Lee, Ph.D. to
Slide 7: Company Strategy
ce Company Strategy » Focus on strengthening position as the most cost-efficient mainstream merchant in the market > Leverage strategic relationships * Micron Joint Venture — key technology driver * Captives and foundries » Target high-end capital expenditures (IC and FPD) = Capture High-End share —
Slide 8: Strong Financial Discipline
a Strong Financial Discipline Solid Performance Over the Past Three Years > Significant gross and operating margins improvements » Improved balance sheet > Asa result: = Enabled strategic investments in technology for high-end ICs and FPDs * Positioned Photronics to outperform the merchant industry
Slide 9: Leading Global IC & FPD photomask supplier
Leading Global IC & FPD photomask supplier Providing leading edge multi-product imaging technology solutions fs > Rapidly expanding market share driven by high-end technology » Strategic manufacturing presence in Asia, Europe and North America > Lean and flexible business model — scalable to demand
Slide 10: HE Investments Concentrated in Strong Regional Growth Markets
a ae HE Investments Concentrated in Strong Regional Growth Markets “ 1 + s mi Change in Regional Semiconductor Revenues Since 2007 im 13 +28% a emmAsia Pacific u Americas —=2pan 10 Europe os 169 os 16% 19% ° source WTS, ne 2018 os - 2007 2008 2009 2010 2011, 2012, ‘americas 42 8 ra ot 5 st Europe 8
Slide 11: Customers
Customers: Taiwan: *uMC Inotera *Nanya *Novatek sHimax RealTek Singapor *Micron Singapore *Global Foundries *Foundry *China Growth Growth Opportunities: *Micron/Rexchip/Elpida (Taiwan, Japan) 10
Slide 12: Taiwan Investment Strategy
ce Taiwan Investment Strategy » Announced on February 26, 2013, our intent to acquire all outstanding shares of majority-owned Taiwan subsidiary - PSMC. Cost expected to be $25 to $30 million » We have increased our share from 57% to 75% over the past two years > Taiwan is one of three areas in whic
Slide 13: Summary
ce Summary > Transitioned from a lean, mainstream provider to a technology leader » Positioned to gain market share and seize opportunity from: = Efficient production — vigilant focus on controlling costs = Strong customer service — our heritage = Continued investments in high-end technology » Conti
Slide 14: Investment Highlights
Investment Highlights Sean Smith SVP, CFO
Slide 15: Investment Highlights
a ee Investment Highlights » Despite 2012 down year for Semi, Photronics remained profitable and improved its balance sheet » Continue to strengthen balance sheet » Photronics will continue to execute on high-end strategy while serving mainstream customers » Significant opportunities exist for high-
Slide 16: What is a Photomask?
— What is a Photomask? > IC (Integrated Circuit) photomasks are used to transfer circuit patterns onto semiconductor wafers during the fabrication of integrated circuits > FPD (Flat panel display) photomasks are used in the fabrication of flat screen televisions, PC monitors, Tablet, Mobile screens
Slide 17: Consumers are accelerating the number of new designs
Consumers are accelerating the number of new designs, and new designs drive both IC and FPD proliferation Agreater number of product types with increasing functionality Shorter product lifecycles ‘Smartphones 2010 2a 2012 2013 Ea 2018 39,2019 ~ ~ 16
Slide 18: Design Activity: Flat Panel Displays
Design Activity: Flat Panel Displays » FPDs appear in more de" IS) soos more sizes, variety of definitions | | 1 I r 65” 60” Ultra HD Ln Flexible OLED SMART TV - 55-inch OLEDHD TV» Curved OLEDs 20% ‘Worldwide Tablet Shipment Share Forecast by Screen Size 39,2019 ~ ~ 7
Slide 19: Overview of Products & Customers
Overview of Products & Customers . 0 : co 450 400 120 380 100 bad 0 250 - siche SFPD HE _ ‘81¢ Mainstream oo ‘SFPD Malnstream 150 |. - 40 100 pf 2» 0 ° 2011 2amiz zon bu High-End (4Snm and below) inrease 16% Serving Approximately 600 Customers Worldwide High End Custome: Pein suned ex ficron SF @icb
Slide 20: Photronics Merchant Market Share
a Photronics Merchant Market Share 25% 1 li I i 2011 2012 2011 2012 ‘Source: Photronics estimates 39,2019 ~ ~ 19
Slide 21: Investment Summary
ce Investment Summary » New designs drive IC and FPD photomask sales > Diversified blue-chip client base — broad diversification > Well-positioned for additional growth and market share gains > Increased market share in both high-end IC and FPD segments - expect trend to continue 39,2019 ~ ~ 20
Slide 22: Technology
Technology Dr. Chris Progler VP, CTO and Strategic Planning
Slide 23: Technology Development Portfolio
Eee Technology Development Portfolio » Advanced customers speak and we listen! = Tightly integrated IC and FPD roadmaps into our development environment = Anticipated and prepared for double and multi-patterning = Stayed flexible with regional and application specific product customizations = Focuse
Slide 24: Strong Technology Pipeline
a Strong Technology Pipeline »> Memory and MPU lead the charge * Giving Photronics early platform access for competitive edge High Volume Leading-Edge Production by Device Manufacturer (R&D and Pilot Lines Excluded) Company Size Commenced Micron 21nm Q1-2010 Samsung 21nm Q1-2011 SK Hynix 20nm Q1-201
Slide 25: IC Mask Technology Driver
a ee IC Mask Technology Driver > Multiple patterning era is upon us = Users now require multiple masks to deliver single device layer = Expected to increase in usage through 10 nm node = Under gridded design methods (GDR) masks may reach 5 per level = Possible early use of EUV as a multi-pattern lin
Slide 26: Positioned to Lead
Positioned to Lead > Multiple patterning drives critical manufacturing technologies Multiple masks must align precisely for composing single device layer Process flow of mask subset must be optimized for total cycle time : sti Mask writing and > Our differentiation alignment. alignments Composed Ali
Slide 27: Investments Further Strengthen Our Differentiation
a Investments Further Strengthen Our Differenti > NuFlare EBM 8000 Writers *US and Asia 2013 installs of state of the art writing tool =Extendible through 14 nm node "Addresses key multi-patterning challenges through 14 nm. + Mask feature placement + Writing speed for cycle time » Processes in place
Slide 28: Converting Capability into Business
a ee Converting Capability into Business > Entering mass production ramp = 28 nm foundry logic — anticipating strong overall node with long tail = 20nm flash and 3x DRAM — memory consolidation > Finalizing leading edge qualifications = 22nm MPU = 2X DRAM = New flash memory architecture > Initiating
Slide 29: Wafer Fab Node Capacity
Wafer Fab Node Capacity May see rapid tran: n to < 20 nm Driven by MPU, flash, 2-3 foundries Wafer Fab Capacity by Feature Size 100% 90% 80% 70% => 199nm aie = 80-199 nm 50% 1m 50-79nm. 40% 30% 38-49 20% ™18.37nm 10% m<i7nm 0% PHoHHARARBSHARESES SSSSSSSSSSeeeegE sSssessassssgggsgs SRSFARSSSRSSARSES
Slide 30: IMS Multibeam Mask Writer Development Effort
IMS Multibeam Mask Writer Development Effort 256,000 programmable writing beams Photronics positioned as early mover Targeting benchmark Cost of Ownership Differentiated cycle time for foundry users Potential for unprecedented edge placement performance December 7, 2011 IMS NANOFABRICATION ANNOUNCES
Slide 31: Pathway Beyond Node
a Pathway Beyond 14 nm Node Multiple mask patterning increases mask layer count Preparations Phase EUV (Extreme Ultraviolet) DSA (Directed Self, Assembly) 39,2019 ~ ~ 20
Slide 32: EUV Impact on Technology Strategy
Eee EUV Impact on Technology Strategy > To extent EUV is delayed = Longer reliance on multiple patterning = Continued push toward gridded design — plays to our strength in arrays = EUV specific capital push out = Node extensions and more sustained node usage » Evaluating EUV adoption timing while pr
Slide 33: Photronics EUV Milestones
—————— a ey Photronics EUV Milestones 2009: Established joint program with captive - Photronics led commercialization effort - Industry leading EUV masks with strong experience base 2010: Became key mask supplier to equipment OEMs - Shipping full spec EUV masks 2011: Expanded development program - I
Slide 34: EUV From Our Leading ArF Platform
a EUV From Our Leading ArF Platform > Multi-sensor mask quality validation = Merging 6 different sensor sources for unparalleled accuracy = Predictive modeling and optimized material management > Driving up first pass yield = Ensures efficient development process on complex EUV blanks > Extending ma
Slide 35: FPD Mask Technology Drivers
a FPD Mask Technology Drivers > Pixel density (UHD) and transistor count (LCD vs. AMOLED) * For fixed screen size, higher definition display (720p to 2000p) requires progressively smaller pixel and hence smaller photomask dimensions = For AMOLED display, 5 or 6 transistors are needed per pixel compa
Slide 36: Impact on FPD Mask Designs
a eS Impact on FPD Mask Designs > Need for resolution and transistor complexity in FPD introduces Resolution Enhancement Technology into photomask = Tracks IC photomask evolution starting in 1998 = OPC, phase shift masks, tighter specifications and increased layer count (Kes Rule/Model Based Model B
Slide 37: Summary
ce Summary > The multi-patterning era is at early stage of a 3 - 5 year cycle = Certain gridded design methods may push toward 5 mask patterning = Photronics has powerful capability driven by early flash memory work > Equipment investments further strengthen our capability lead = EBM 8000 is a multi
Slide 38: High-End IC
High-End IC Dr. Peter Kirlin SVP, U.S. & Europe
Slide 39: High-End IC Strategy
High-End IC Strategy Relentless execution = industry standard in mainstream market segment Utilize Micron partnership and co-developed photomask manufacturing technology to achieve leadership in high-end memory market segment Investment in high-end capacity in nanoFab, PKL and PSMC to support leadin
Slide 40: Evolution of High-End Strategy: Time
ee Evolution of High-End Strategy: Time > Formed memory driven joint venture MP Mask LLC (Micron, 2006) > Full rights for roadmap input, IP, tech transfer and commercialization > Expanded capability and capacity in Asia Segment DRAM - High End v v v Flash - High End v v Memory POR MPU — High End Qua
Slide 41: Evolution of High-End Strategy: Geography
a ae Evolution of High-End Strategy: Geography » Continue investing for sustainable, technology leadership » US nanoFab and PKL Korea enable fastest roadmaps » Expanding our high-end presence in Taiwan driven by increased memory and foundry opportunities 3.203 ~ ~ 40
Slide 42: Mainstream vs High-End mix
2008 2010 2012 Mainstroam 99% High-End: 45nm and Below 39,2019 a
Slide 43: Looking Ahead: Logic Migrating to Memory Tech
a Looking Ahead: Logic Migrating to Memory Tech Fin Structures on Intel 22 nm node Tri-Gate** 25 nm IMFT NAND Flash* = Entire industry moving in the direction of our core technology = Multiple patterning proliferating 39,2019 ~ ~ a2
Slide 44: Looking Ahead: Semiconductor Capex Spending
g Ahead: Semiconductor Capex Spen conttt,, 2005 2013 F 8% excpoan OOM CEpPENE uropean Connie oe companies panies: 1 SQ) ort american Taiwanese SN. “companies Companies Bel oH Companies Companies iba Sou: 2019 ae Rank mpany: |2013F ($B)| %WW Capex 2 Bene no | im 7 a 39,2019 43
Slide 45: Summary
ce Summary > Relentless execution in the mainstream segment has enabled Photronics to invest in high-end technology and capacity > Photronics is now a leader in high-end memory and is gaining traction in high end logic segment » Moving Forward Photronics is = exceptionally well positioned geographic
Slide 46: Flat Panel Display
Flat Panel Display Dr. S.H. Jeong President and COO, Asia
Slide 47: FPD Overview
FPD Overview > Strategically located in geographic centers of display technology and manufacturing \\ = Cheonan, Korea = Taichung, Taiwan » Technology leadership » Strong customer relationship 39,2019 ~ ~ 46
Slide 48: FPD HE Market Share
10 . AT% FPDHE: ‘SFPD Malnstream 2000 2010 201 2012 zon az Market Share 2012 ‘Source: Photonics esinates- Koes & Ten Market 2011 Source: Pooric erates Kore & Taian Market 39,2019 a7
Slide 49: Display Market
a ee Display Market > Improving industry outlook 2013 Lad = Development focusing on Premium Product ™ Volume production increases an >» ory = Focus on Ultra-large size (60"+) and Ultra High Definition (4K2K) TV > PC/Tablet: = Tablet demand continuously growing = PC Panel demand is stable > Mobile: =
Slide 50: Flat Panel TV Market
a Flat Panel TV Market » Stabilizing demand > HD growth » Size proliferation » Key customer drivers: Samsung, LG continue to gain share 2012 Worldwide Flat Panel TV Brand Rankings by Revenue Share Rank Brand 2011 Share 2012 Share__ Y/Y! : a EE i i ee ae 3 sony ne r | | ee : Sanne oon om a 39% sam =
Slide 51: AMOLED Growing Share
a ee AMOLED Growing Share » Mobile, Tablet AMOLED Mobile Desieiecet: = Samsung market leader “ + Galaxy S4, Tablets Bon } + New S4: Full HD AMOLED + Samsung 95% share Mobile AMOLED ral = Other OEM adoption al + HTC, Motorola, Nokia, Huawei ora! aos ane 2015 ante 2017 > Emergence of larger format dis
Slide 52: Summary
ce Summary > Global display environment improving in 2013 > Prior investments continue to build more revenue > Increase in display sizes, formats (AMOLED, Flexible) and definitions (HD) are positive trends for the photomask business 39,2019 61
Slide 53: Financials & Outlook
Financials Outlook Sean Smith SVP, CFO
Slide 54: Index
Index > Recent historical prospective and long-term targets > 2012 results > Q1-2013 results > Q2-2013 update > Cash priorities, financial focus and key stats >» Summary 39,2019 ~ ~ 63
Slide 55: Building Strong Financial Foundation
Building Strong Financial Foundation {in millions $) 517 448 370 12 66) 2008 2009 2010 2011 2012 avy Ado uNetCash WEBITDA uWorkingCapital = TBV 39,2019 64
Slide 56: Strong Free Cash Flow
a ee Strong Free Cash Flow TTM EBITDA“) and Cash CAPEX?) $M. EBITDA (TTM) Cash Capex (TTM) 173 170 173 155 155 154 143 138 432 “ 138 2 118 105 , 107 " 92 90 cs 80 | 82 a1 85 71 69 72 (69 52 : ii | | | | | | | | | (1 gerTOA defined as operating income plus OBA, seckhasad compensation and aber nanrecu
Slide 57: FY 2012 Results
FY 2012 Results
Slide 58: Fiscal Year 2012 Results
a ee Fiscal Year 2012 Results > Revenues of $450 million, down 12% > IC revenues of $350 million, including $110 million at 45nm and below (16% improvement) » FPD revenues of $100 million, including $63 million of 2G8 and AMOLED products » 2012 gross and operating margins of 25% and 10%, respectivel
Slide 59: Strong EBITDA and Free Cash Flow
a Strong EBITDA and Free Cash Flow TTM EBITDA ‘and Cash CAPEX $M SEBITDA(TTM) Cash Capex (TTM) (1 EBTOA tnd peng eon OHA eau pyar pope buen qa — (exten 82 rion eh pyre coecon wih pcan te rrab bila which wes traced inte GredtFecity = ion = (SOR FE) AVALYST INVESTOR DY =EDNESOA PRE ——> = 3.203
Slide 60: Q1-2013 Results
Q1-2013 Results
Slide 61: Q1 Financial Results
ce Q1 Financial Results > Q1 sales of $99.8 million (within narrowed guidance of $99-$100 million) = IC photomask sales of $74.4 million * High-end sales (45 nm and below) of $17.9 million or 24% of total = FPD photomask sales of $25.4 million * High-end (2 G8 and AMOLED) of $17.4 million or 69% of
Slide 62: Strong EBITDA and Free Cash Flow
a Strong EBITDA and Free Cash Flow (DA and ist PEX $M 200 EBITDA(TTM) ™Cash Capex (TTM) ‘0 ‘0 a a0 ‘00 © « « » a ott anit aot Ott atet2, aot2: oHi2: at-19 (1) EBITDA dofnad as porting income plus DBA, stock based componstion and other nonrecuring cargoes cash capox defined as cash psyranisof propery
Slide 63: Capitalization
a ee Capitalization (in mittions) Cash $190 $218 $218 $30 million revolving credit agreement 2.50% (maturity Apr. 2015) 3. $- se $25 million term loan 2.80% (maturity March 2017) : 24 23 Senior unsecured 5.5% convertible (maturity Oct. 2014) 22 2 2 Senior unsecured 3.25% convertible (maturity April
Slide 64: Photronics Cash Priorities
Photronics Cash Prior > Provides us with the flexibility to pursue strategic opportunities in the marketplace to advance our leading-edge capability for IC and FPD products » Strategic opportunities can come in many forms » Capital intensive business requires annual investments » Reduction of outsta
Slide 65: Q2-2013 Update
Q2-2013 Update
Slide 66: Q2-2013 Guidance
Q2-2013 Guidance (in millions, except EPS) Q2 Revenues $106 - $110 Taxes: Q2-2013 $2.0 - $3.0 FY-2013 $11 - $13 Cash Cap Ex - 2013 $70 - $90 Diluted Shares 76.6 Q2 EPS $0.07 - $0.10 39,2019 ~ ~ 65
Slide 67: Q2-2013 Update
a Q2-2013 Update > Initiated intent to acquire all outstanding shares of PSMC. (estimated cost: $25 - $30 million) » Accelerated delivery of two advanced e-beam litho tools for North America and Asia for additional high-end capacity > Entered into a 5-year, 2%, $30 million capital lease for one of t
Slide 68: Taiwan Investment Strategy
ce Taiwan Investment Strategy » Announced on February 26, 2013, our intent to acquire all outstanding shares of majority-owned Taiwan subsidiary - PSMC. Cost expected to be $25 to $30 million » We have increased our share from 57% to 75% over the past two years > Taiwan is one of three areas in whic
Slide 69: Investing in High-End Capabilities to Capitalize on Opportunities
ee Investing in High-End Capabilities to Capitalize on Opportunities > 2013 Cash Cap Ex expected in the range of $70 to $90 million = In 2014, Photronics will have three leading-edge tools strategically located in the U.S., Korea and Taiwan to serve high-end memory, logic and foundry customers = Sup
Slide 70: Key Photronics Stats — Q1-2013
a ee Key Photronics Stats — Q1-2013* Net Cash $43M Net Cash per Share $0.56 Free cash Flow/Share (TTM) $0.77 Book Value/share $7.76 Price/Sales (TTM) (approximately) 4.0x Price/Book 0.78x * 76.5 million fully diluted shares 39,2019 ~ ~ 69
Slide 71: Photronics' Financial Focus
a ee Photronics’ Financial Focus > Maximize free cash flow » Reduce cost of capital and debt > Continuously evaluate all costs for reductions and avoidance, including manufacturing network > Invest prudently > Maintain financial flexibility 39,2019 ~ ~ 70
Slide 72: Photronics Financial Goals/Targets
Photronics Financial Goals/Targets Revenue Growth = 10% Operating Margin 217.5% Incremental Contribution Margin 250% Free Cash Flow > $75 million Net Cash 2 $75 million 39,2019 n
Slide 73: Investment Summary
Investment Summary » Despite 2012 down year for Semi, Photronics remained profitable and improved its balance sheet » Continue to strengthen balance sheet » Photronics will continue to execute on high-end strategy while serving mainstream customers » Significant opportunities exist for high-end mark
Slide 74: Q&A
Q&A