Ladies and gentlemen, thank you for standing by. Welcome to Photronics’ second quarter earnings call. [Operator instructions.] As a reminder, this conference is being recorded Tuesday, May 20, 2014. I would now like to turn the conference over to Mr. Pete Broadbent, Vice President, Investor Relations and Marketing. Please go ahead, Mr. Broadbent.

Thank you, and good morning, everyone. We’d like to thank you for joining our second quarter 2014 conference call. Before we begin, I would 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 third quarter 2014 results. Joining us on the call today are Constantine Deno Macricostas, Chairman and Chief Executive Officer; Dr. Peter Kirlin, President; Sean T. Smith, Senior Vice President and Chief Financial Officer; Dr. Christopher Progler, Vice President, Chief Technology Officer and Strategic Planning. During our remarks this morning, we will be referring to slides posted on our website under the Investor Relations link. And now, I would like to turn the call over to Deno Macricostas. Deno?

Thank you, Pete, and good morning everyone. We have a lot to cover today. I’m going to make just a few comments on the closing of our joint venture in Taiwan, which was a significant event for us in the quarter. Then I will turn the call over to Peter and Sean to cover more details of the transaction and our quarterly results. First, my compliments to the management teams of DNP and Photronics. Together, the teams executed on a combined vision for a unified organization to serve our Taiwan customers. Transactions like this are always difficult to bring to completion, and I want to express my appreciation to both teams for their hard work and commitment to getting the job done. Both management teams were in Taiwan in April, and hit the ground after the closing to meet with our customers and suppliers. The reception to the formation of PDMC from our customers was outstanding and motivating. We look forward to the coming quarters, as we realize the full effect of the consolidation. And now I would like to turn the call over to Peter Kirlin, who will offer some additional comments on the joint venture and the quarter. Peter?

Thank you, Deno, and good morning everyone. Sean will provide a detailed financial breakdown of our quarter, but first a few highlights and some comments on trends in our business. Please turn to slide three in our presentation. Keep in mind as we review our financials today that our results include about 3.5 weeks’ contribution from the former DNP Photomask Technology Taiwan, which was merged into the new PDMC joint venture that closed on April 4. We are not breaking out the contribution from PDMC in our results this quarter or in the future for competitive reasons. So with that said, in Q1 we achieved sales of $104.9 million, up 3% sequentially. IC sales were $76.6 million, basically flat sequentially. High end sales were up 4% sequentially. FPD sales came in at $28.3 million, up 12% sequentially, driven by solid demand for high-end display [demands] [ph] which was up 32% sequentially. On the IC side of our business, we are still awaiting the increase in business resulting from our key customer’s ramp of new technology wins. [Inaudible] reflected the continued softness in both memory and foundry logic. However, we are executing well. Our customers are pleased with our support, and we expect to ramp to the next memory node, which will start during the current third fiscal quarter. FPD sales were very strong during the quarter. High end revenues for leading edge products including AMOLED, reached an all-time high of $20.6 million. Customer demand for leading edge technology reticles for both R&D and production across multiple product types was consistent across the quarter. Looking ahead, we remain confident in our business model, our position in the market, and our opportunities for customers. Progressing to advanced nodes in semiconductors and the diversity of demand for high end display devices, are key…

Thanks, Peter, and good morning everyone. I’ll provide a brief analysis of our financial results for the second quarter of fiscal year 2014, review our balance sheet, cash flows, discuss our forecast, and also provide a business update on PDMC, our new Taiwan JV. Please turn to slide four, which describes the PDMC JV, which we formed, as Peter stated, on April 4, 2014, with the noncash JV or merger of our wholly owned subsidiary, PSMC, with DNP Taiwan, a former Taiwanese subsidiary of DNP. Some of the basic tenets of the PDMC JV include the following. Photronics owns 50.01% and has consolidated PDMC in our financial statements. Photronics manages and controls PDMC. This is absolutely critical to our ability to be successful with our high-end strategy. Accordingly, our Q2 results include the revenues, expenses, and cash flows of DNP Taiwan from April 4 to the end of the quarter. The PDMC JV has a well-capitalized balance sheet and should be self-sufficient. As a result of including the fair value of the former DNP Taiwan net assets on a consolidated balance sheet, Photronics’ net assets increased by approximately $115 million. We did not assume any debt related to the formation of PDMC, and in connection with the formation of PDMC, and inclusion of the fair value of the former DNP Taiwan’s net assets, we had a net gain during the quarter of $14.4 million, which is net of approximately $2 million of one-time transaction expenses. The gross amount of the nonoperating gain was $16.4 million. Looking forward, we estimate that our top line will grow by at least $80 million annually from the JV, with the vast majority of the revenue from high-end IC products. We expect to extract annual cash synergies of $5 million to $7 million, with impact…

[Operator instructions.] Our first question comes from Edwin Mok with Needham & Company. Edwin Mok - Needham & Company : I think Peter, you mentioned in your prepared remarks that you expect to see memory in the high end IC side to grow in the coming quarter. Is that coming from your joint venture partner here in the U.S.? And is that a trend that we should expect to continue? If you can provide some color around it, it would be helpful.

As you know, the memory customers ramp new nodes at some regularity, and one thing’s for sure, and that is there’s been a slowdown over the last few years in the speed in which the next memory nodes have come to market. So we’ve been waiting to see this large customer of ours start the next node, and they obviously made an acquisition, which had an impact on their plans. But we now see, in the coming quarter, the early stage of the next node ramp, and that should start in the current quarter, but the full effect of it will be felt in the out quarters. So it’s the first step, which should be a nice bolus of business for us. Edwin Mok - Needham & Company : Did the joint venture help you in terms of capturing some of the potential business there in Taiwan or in Japan for that customer?

Well, I think having more capable Taiwanese manufacturing presence with superior customer service is a positive for that particular customer. And I think as you know, their acquisition was of a company where we had no business. So we expect that all of the acquired capacity will ultimately end up running either our joint venture’s reticles or our reticles. So it’s a significant positive for us, and the fact that we have a more capable presence in Taiwan is helpful. Having said that, I think given the strength of our technology partnership and our execution in [inaudible], I expect we would have had all of that business in any case. Edwin Mok - Needham & Company : I think a few quarters go, we talked about qualification on the logic side and the Korean customer. I was wondering how that’s progressing. And I think that customer has cut back on 28 nanometer investment, but at the same time, they’re planning on some 14 nanometer capacity investment in the coming quarters. Do you see that as a catalyst to drive growth at that customer?

I think regarding the 28 nanometer [qual] [ph] for that customer, that’s long in the rearview mirror for us now, so that’s completed and they’re well-satisfied with our capability. Regarding the 14, as you mentioned, there’s been a lot of press about 14, not just for them, but for their partner, Global Foundries, which is all good. But I think as you correctly stated, that’s a 2015, not a 2014 calendar year event for us. And I’m very confident that we’ll be long qualified before there’s any real commercial volume to be had from either that customer or their partner, on 14 nanometers. Edwin Mok - Needham & Company : And I guess a modeling question for Sean. I guess if I look at your tax, and minority interest, I find it peculiar. If I use your full year tax guidance, it implies the tax will go to $4 million in the fourth quarter, and you mentioned that you have a very high minority interest in this quarter, in the third quarter. I was wondering, is that minority interest staying at this level? Is it just a one-time event? And finally, you talk about capital depreciation and [inaudible] expense of $3 million this quarter. Is that fully [sorted] [ph] in your gross margin, just help us out a little bit on the margin, thanks?

Okay, I’ll try to take them in reverse order. With respect to the depreciation and amortization, I did say we project it to increase approximately $3 million this quarter. That’s representative of two items. One is the full quarter impact of PDMC, including the tools from the former DNP Taiwan that we brought over, and then secondly, other tools within the Photronics network that are coming online. With respect to the tax expense, it’s very difficult for us to give an effective tax rate, as we’ve talked about in the past, because we are taxpayers, for example, in Taiwan, one of our subsidiaries, in Korea, and we’re not a taxpayer in the U.S. So depending upon where the flow of income is, it does wreak havoc with an absolute effective tax rate. So that’s why we historically have given it in absolute dollars. The minority interest comment, essentially, the majority of that minority interest represents our partner’s share of profits that we don’t retain. We didn’t provide guidance for Q4 on that, but it just gives you a flavor of how we believe we expect the JV to be successful. So we’ll provide further guidance as we move out. As you’ll remember, a couple of years ago, we had a minority interest anywhere from $1 million to $2 million per quarter, when we didn’t own 100% of PSMC. So that said, although minority interest is taking away from the bottom line, bear in mind the EBITDA is not, and the cash flow is not, and the balance sheet strength is not. Edwin Mok - Needham & Company : Historically, your IC business declines seasonally in the October quarter. Is there any reason for us to believe that it won’t happen this year?

That is the fourth quarter, and we aren’t providing guidance on that. Hopefully with the inclusion of the JV, our quarter should be up, but we’ll have to wait and see. As Peter talked about, there’s many opportunities out there that we see that we expect to capitalize on.

Our next question comes from the line of Tom Diffely with D.A. Davidson.

Quickly, on your guidance, you talked about $120 million to $125 million in the quarter, but you also commented that at least $20 million is coming from the joint venture. So is the core business pre-joint venture up at all? Or was there a revenue component in the just-reported quarter, because of the month of business?

Both Peter and I said, for competitive reasons, we weren’t breaking out the incremental revenue. But I think it would be fair to say that we were trending towards the lower end of the range of our guidance for Q2. And we also experienced a sequential decrease in IC revenues with one of our foundry partners, however, not relating to any market share shift. So we do expect things to improve, and if they improve better than what we have forecasted, great, but this is what we see as we move into the quarter.

And then if you look at your guidance for EPS of $0.02 to $0.07, is there some way you could forecast what that EPS would have been had you already had your $5 million to $7 million of cost savings in place?

There’s a lot of moving parts with respect to the JV. It’s in its infancy, and as Peter mentioned, we’re making great progress on the integration, but we have a transition for a quarter. I think we’ll be better versed once we close Q3 to give you a little bit more granularity. But Photronics has, arguably - and maybe I’ll let Deno add some comments on this -had a great track record of extracting costs out of acquisitions over the past few years.

Definitely we’re optimistic that we’ll be able to [inaudible]. There’s a lot of opportunities. So we feel very positive that we’re going to streamline the operation [inaudible], and reduce the cost.

Do most of those costs come from the COGS line? Or the operating expense line?

Most of them come from the COGS line, but there will be some operating costs, and it could run the gamut from materials to equipment costs, service contracts. We have some Japanese support costs that will transition over time. Any redundancies that we have. So it’s a lot of items that we’re working on.

We have a very long list of 30, 60, 90 and then 120 day integration objectives. And we had a very extensive review of the 30-day objectives, as you would imagine, just two weeks ago. And I would say it was about a 95% closure rate. We were successful against the 30 day, and we have very good penetration against the 60. And as long as we [inaudible] decisions and keep everything visible, we’ll hit our targets.

And then finally, you mentioned that you did acquire some tools from a captive shop. Any meaningful leading edge tools there? Or is it essentially buying some assets to acquire a customer, if you will?

It’s typically what we’ve done in the past. It just rounds out our installed equipment base.

Our next question comes from the line of Patrick Ho with Stifel.

First question, in terms of the Taiwan JV, as that region starts migrating to the leading edge on a broader basis, can you just kind of give color on how you’re going to capitalize on that region’s migration to those advanced technology nodes?

I think there are maybe two aspects to your question. I’ll maybe take the commercial aspect, and I’ll let Chris handle the technology. You’re very correct. Obviously KSMC is going great guns [inaudible], and has been, and that’s well known. Having said that, the rest of the region on the foundry side is just really starting to ramp that commercially. And given our [inaudible] partnership with that customer now, we’re very confident that we’re going to enjoy the lion’s share of their commercial ramp at the 28 nanometers node, because basically we’re on the ground to build their parts, and we have that capability on the ground backed up now in two other global sites, and soon, a third. So now we have secure local capability commercially, we have far more backup globally, and then we have a technology partnership with them that we expect to expand upon. I’ll let Chris comment on that.

I think for 28 nanometer logic, we have a solid process capability there. We’re finishing up some tech transfers. We [inaudible] production. So we definitely will ride a nice wave of expanded use of that logic node. As far as the next logic node, those are under development, getting finished up at actually both parent sites. We’ll do a technology transfer model into the joint venture, is how it will work. We’ll have some assignees, we’ll move those processes very quickly. Time to the market, as it starts to expand for 14 nanometer. So we think we’re in good shape there as well technologically. On the memory side, as Peter mentioned, our joint venture with Micron is already qualified, with all of the Micron memory products. Through our partnership there, Photronics is qualified for most of them, and we’re finishing up the remaining ones. To the extent those processes start to ramp in Taiwan most notably, it’s [inaudible], those Micron-affiliated companies. We’ll initially service the majority of that from our foreign sites, but we’ll also move those processes over selectively to give some local supply. So we have a good model. It’s flexible, low capability. We think it’s best in class. But overall, we think we have a nice pipeline of new technology coming from really both parents, DNP and Photronics. We can keep that technology capitalized to meet the customer needs there.

And Sean, maybe a question related to the cost savings. You mentioned just a few moments ago that the majority of the cost savings are going to come from cost of goods. Without getting into specific dollars, can you kind of just give us some examples of the initiatives you’re going to take to get some of those cost savings? Are they primary just in terms of reducing duplicate cost? Or are there other tangible measures that we’ll see over the next couple of quarters in getting those cost savings?

There’s really a variety of initiatives. Certainly, consolidating our purchases gives us leverage with the vendors. Looking at the materials that both parties use and searching for the lowest price point on materials is another. Looking at the same grade of reticle that they make versus we make. What materials we use what materials they use, since both are qualified. Which [inaudible] materials offers the lowest cost to produce, and then implementing that broadly. Looking at what service models they use, what their service pricing is, who has the best in class from both an uptime as well as a purchase price perspective. I could go on and on and on. But there are plenty of opportunities in front of us to wring the cost out that we’re looking for.

We obviously have many moving parts as we work to integrate both the operations and back room functions, and as Peter talked about, we have an aggressive synergy plan that we’re working on, and we’re extremely confident we’ll be successful. That said, it’s going to take some time, and we do expect, when we close Q3, we gave the guidance for Q3, when we close Q3, we’ll get further granularity about the success points for where we are, and also establish new targets on incremental revenue. We’ve talked in the past about 50% drop through. Obviously, that’s not feasible day one, but a couple of months or quarters of the JV. But we’ll reestablish new targets as we move forward.

The other synergy opportunity both on the upside rather than on the revenue line and the cost line is PSMC was basically out of capacity before we did the acquisition. We had plans, as you might recall, to invest there to raise its capacity. When we did the deal, on the other hand, our partner wasn’t fully loaded, so as I said in my prepared remarks, we’ll be maybe raising capacity utilization with the combined entity. So we have a different kind of synergy, but it’s not one to be missed, for sure.

And maybe going to the flat panel display side for a second, overall trends appear to be getting better near term, particularly from larger panel sides. Is that where you’re seeing some of the pickup, particularly at the advanced flat panel display? And secondly, how do you see the AMOLED market trending? Is that something that now pushes out into calendar ’15, based on what some of the customers are doing?

I think you’re correct on the large panel side, particularly LCD, stronger, I think, than it’s been in a long while. So that’s a positive trend. On the mobile display, I think that’s going to get very interesting later on in the year, particularly Apple’s rolling out a larger format display. That always gives their competitors in the supply chain a kick in the pants for raising things up on mobile displays. So larger higher-end mobile display. Of course, Apple’s not designed on AMOLED, but I think what you’ll see is the bar get raised once again on AMOLED displays for their competition. And we are engaged in development projects and working with them on new designs for AMOLED. So that also looks very interesting going into the future the next couple of quarters. I think you’ll see a lot of good work on the display side.

Our next question comes from the line of Tom Diffely with D.A. Davidson.

Just a follow up on the flat panel display side. We’re seeing equipment guys get a few large orders from Chinese vendors, and I’m curious if you have exposure there today, and if these are potential customers that you can serve from your Asian opportunities.

We do have exposure there. We are selling flat panel masks into China. We track the market very closely and you’re correct, just as in the IC side, there seems to be renewed commitment there to establish production capacity, particularly a little more aggressive on the technology side in Mainland China for both display and IC, actually. So we are coupled into both of those initiatives, we are selling into Mainland China, and we keep a close eye on it to make sure that we participate to the extent that capacity comes online.

And when you look at the equipment guys getting some nice orders this quarter both from the DRAM and the flat panel display market, what is the relative time lag between when you see equipment orders and design activity for you in those two markets.

That’s a good question. It depends. If they’re equipment orders to add capacity, it could be fairly rapid. If they’re capability orders for new nodes, then it could take much longer. I would say six months is kind of the minimum if it’s a capacity bottleneck tool. They can actually be put online pretty quickly. I think in the memory case, that’s what you’re seeing. Some of that is capacity and filling in a couple of holes. So that capacity could come online quickly. I think on the long end, it’s 12 to 18 months by the time you see kind of a strong capital equipment cycle feeding into the broad materials supply chain as that gets put to use in wafer fabs. So that’s kind of the time spend, depending on the use of the capital investment.

So it’s encouraging for a ramp over the next year, then.

I think so, yes.

And then Sean, one more question for you. You talked about an operating expense increase of $1 million to $2 million. Is that above and beyond what you posted in the April quarter?

If you take the April quarter, you back out about $2 million of transactional expenses, and then it could be up in the $1 million to $2 million until we get the synergies extracted. If you exclude the transaction costs, SG&A was actually down $500,000 quarter over quarter. So while we’re focused on extracting synergies out of the JV, the ongoing or daily effort for the rest of the enterprise is still ongoing.

So if we’re taking out two and adding one to two, then we’re essentially flat quarter over quarter.

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Ladies and gentlemen, there are no further questions at this time.