Photronics, Inc. (PLAB) Q2 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen thank you for standing by. Welcome to the Photronics Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will have a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this conference call is being recorded, Wednesday, May 17, 2017. I would now like to turn the conference over to Troy Dewar, Director of Investor Relations.

Thank you, Bridgette. Good morning, everyone. Welcome to our review of Photronics 2017 second quarter financial results. In addition, we will be discussing our announcement this morning of a new joint venture in China. Joining me this morning are Dr. Peter Kirlin, Chief Executive Officer; Sean T. Smith, Senior Vice President and Chief Financial Officer; and Dr. Chris Progler, Vice President, Chief Technology Officer and Strategic Planning. The press releases we issued this morning, along with the presentation materials which accompanies our remarks, are available on the Investor Relations section of our webpage. Comments made by any participant on today’s call may include forward-looking statements that include such words as anticipate, believe, estimate, expect, forecast. These forward-looking statements are based upon a number of risks, uncertainties and other factors that are difficult to predict. Actual results may differ materially from those expressed or implied and we assume no obligation to update any forward-looking information. Finally, during the course of our discussion, we will refer to certain non-GAAP financial measures. These numbers are useful for analysts, investors and management to evaluate our 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 Peter.

Thank you, Troy and good morning everyone. We are very excited that you could join us this morning. In addition to providing an overview of our second quarter financial results. I’m pleased to share with you today, we are announcing the formation of a new joint venture Dai Nippon Printing or DNP. This new JV will affectively extend our existing Taiwan partnership with DNP to now include mainland China. This is a great agreement build upon a very successful relationship in Taiwan and one which I fully believe will benefit our customers, employees and shareholders. I will say more about the JV in a few moments, but first I’d like to offer my perspective on our second quarter results and current business trends. Second quarter sales were essentially flat. As double-digit growth in FPD was offset by a modest decline in IC demand. FPD sales improved sequentially for the first time in several quarters primarily due to strong main stream demand. It’s worth mentioning that FPD sales improved each month during the quarter, with April being the strongest month in this period. In fact, our facilities are running near full capacity as we exited the quarter. We anticipate this will continue even as we add capacity over the next several months. The first of two writing tools we ordered last year is being installed as we speak, and we anticipate the second to be in installation early in Q4. Our expectation is that both tools should be fully utilized once they are installed and qualified. High-end IC while down sequentially, also achieved improving sales trends during the quarter, with a relatively higher level of backlog as we ended the third quarter. High-end memory demand had a positive impact on our sales [indiscernible] logic in Korea. High-end logic in Taiwan remained very soft, but we anticipate improving demand trends now that our largest IC customer has obtained approval to produce 28-nanometer in our new China fab. It will take a few months for them to complete qualifications and ramp production, and the timing of these processes is always difficult to predict with certainty, but we should benefit as they successfully accomplished this. Gross margin was pressured by unfavorable product mix that were negatively impacted by foreign currency exchange loss in other income. However, when you get the bottom line EPS was equal to the first quarter. Cash generation was once again positive for the quarter, improving our financial strength and flexibility. As we continue to invest in our future, it’s very reassuring that we are in a position to fund planned organic growth projects. Coupled with the impact of today’s JV announcement, we should be able to fund the China IC expansion while using less of our cash. Additionally, we remain active exploring M&A opportunities and want to be able to fund these without the need to incur excess leverage. So in summary, second quarter performance was essentially in line with the first quarter. We saw improving demand across the business during the quarter, and believe those positive trends will continue as we move into the second half of the year. The business is moving in the right direction, and I’m pleased with the response of the entire organization to take full advantage of the opportunities that the market presented to us. During the quarter we realigned our Asia management team to better support our customers operations in the region and we are already beginning to see results. All these factors support the optimism I have regarding our performance going into second half of the year. Shifting gears to discuss our growth thrust in Asia. Many of you will recall that approximately 3.5 years ago, we announced the JV with DNP to combine our efforts in Taiwan. I have been in the photomask industry for many years and JVs like this extremely rare. There are examples of photomask suppliers partnering with customers, but not to competitors, especially two large competitors coming together. But the timing was right and the conditions supported the formation of the JV. Looking back, we believe that Taiwan JV has been successful by any measure you choose. So you will see it growing every year since we formed the JV. We expect that trend to continue. Additionally, and more importantly PDMC has been profitable each year and generates significant operating cash. PDMC has become a recognize leader in the Taiwan photomask industry. We’ve been extremely pleased with the relationship that has developed with DNP. As a result today we're announcing the next step in our partnership. With today's announcement we are effectively expanding our JV with DNP in the mainland China. This includes the facility currently under construction in Xiamen, IC photomask sales in the country including high end logic and memory. This partnership should allow us to more effectively compete in the merchant market photomask business in China, combining our sales and business development channels to serve local customers by leveraging our share resources in Taiwan, we can extend the PDMC brand that our customers recognize. Using the people and technology behind our Taiwan success. Dr. Frank Lee is President in PDMC will hold the same position at PDMCX. This will allow to utilize all cash held in Taiwan and greater reduced to risk of ramping of our new factory in China. When we announced the investment in China last August, we stated this will help us achieve our strategic priorities, maintain mainstream market share, win new high-end business and expand geographically. Improving this partnership with DNP should allow us to achieve these objectives more efficiently and with less risk. I truly believe today's announcing is the next logical step in the evolution of IC business. Finally, just a quick update on our FPD plan as it relates to China. We are still in the planning phases and are evaluating potential sites for expansion. As I stated before, just as we've done with IC, it’s important for us to have a strong commitment for the customer in the region. We are accurately engaged in discussions with several leading display producers. At the same time, the market situation in display is very dynamic as more and more capacity is being added in China and the global market technology shift to AMOLED accelerates. We'll make sure the decision we make aptly position us to benefit, as the high-end display markets evolve in Korea, Taiwan and China. At this time, I will turn the call over to Sean to provide more details on our second quarter performance as well as outlook for Q3.

Thanks, Peter and good morning, everyone. Second quarter sales sequential were essentially flat, as the decline in IC sales were largely offset by higher FPD demand. IT sales were down 4% to 83 million high-end IC sales were down 3.4 million dues primarily to decreased high-end logics demand in Taiwan. FPD sales increased 10% quarter-over-quarter, high-end sales were essentially flat sequentially while mainstream mask increased 2.7 million sequentially. As Peter stated, FPD business grew month-by-month during the quarter, primarily mainstream. We do expect orders to continue to be driven by new AMOLED displays for smartphones. Last year, we announced an additional investment in FPD capacity, which we are beginning to install. We are confident in growing demand in the second half of the year and believe this new tool should set us up to benefit from this trend. On a year-over-year comparisons both IC and FPD were down significantly as the high-end business was exceptionally strong during the second quarter of 2016. Gross margin decreased sequentially primarily due to approximate as Peter alluded to. Operating expenses were essentially flat sequentially. As a result, our operating margin was 5.1%. Net income was 1.8 million or $0.03 per share and includes $3.6 million of other expense primarily related to foreign exchange loss as U.S. dollar and Japanese yen weakened as compared to our foreign sites currencies during the quarter. Minority interest income was $300,000 as our JV in Taiwan was impacted by the reduced high and logic demand in Taiwan. EBIT was $25 million in the quarter and represents 120 million for the last 12 months. Operating cash generation was $15 million and we spent $4.6 million on CapEx. As a result, our cash balance now stands at $346 million with net cash at $281 million. Working capital stands at 380 million. Based on our latest projections, we still anticipate spending 80 million to 100 million CapEx this year, including the balance of our FPD investment in 20 million to 30 million towards our China IC investment. We continue to explore areas to increase the amount of redeployed tools used in China which will have an effect of reducing cash outflows for investment in future years. As Peter alluded to we are excited about our announcement of new JV in China with DNP in Xiamen. Last summer we announced that we were building a Greenfield site on our own. Now with this partnership we will be sharing that total investment of 116 million as we in essence have a 50-50 partnership, however we will consolidate it. Additionally, the P&L impact for the startup phase will be minimized as we will share equitably the startup cost. Before providing third quarter guidance, I would just like to remind everyone that our visibility is always limited, as our backlog is typically one to two weeks. Also, demand for some of our products is inherently lumpy and difficult to predict. Finally, as our high-end business has grown, ASP for these assets are higher, a relatively few number of high-end orders can have a significant impact on our sales for the quarter. Given these caveats, we expect third quarter sales to be between $110 million to $120 million. This range assumes improved mainstream IC sales, mixed results in high-end IC and growing FPD sales, with orders for new AMOLED displays ramping at the end of the quarter. Based on this revenue expectation and our current operating model, we estimate earnings per share for the third quarter to be in the range of $0.05 to $0.012 per diluted share. We believe we have tremendous opportunity to build upon our market and technology leadership as well as continue to explore ways to use our balance sheet to produce sustainable profitable growth. Thank you for your interest. I will now turn the call over to the operator for questions.

[Operator Instructions] And our first question comes from the line of Edwin Mok with Needham and Company. Your line is open.

So first question I have on the China Joint Venture, just straight to the point out, why did you need to do a JV here, it sounds like your already have some share cost and share risk, but is that just on cost and it also sounds like you can leverage resource from the Chinese, Taiwan joint venture, is that the main motivation? Can you kind of explain the main motivation why you needed to do a JV? It sounds like you could have afforded to be able to do it on your own. So just trying understand that.

Yeah, our purpose there is to better serve the customer base and as you said during the startup phase, we basically -- we bundled the business that we have already developed in China and we should therefore ramp incrementally quicker and do a better job at providing what we would describe as critical mass merchant in China. When we formed the JV with DNP 3.5 years ago, the way I would describe the China mass market was there was a couple of subcritical mass, photomask supplies in the merchant space. Once we came together with DNP, it became very clear that there was a merchant there that was capable of partnering with any of the local customers. And I would say, in China, our biggest challenge is to ensure that no more captives spring up, and by partnering with DNP we bring what looks very much to the China semiconductor industry as not a supplier, but a company capable of being their partner as they move more aggressively in the IC business.

Okay. Good. Does DNP have existing operation in China? Are they countering to that or are they shrinking those resources? I’m just trying to understand that part.

Yeah, they like -- DNP like Photronics right now has sales and distribution. It basically -- it’s a sales organization in China, developing the market and I really can’t speak to what else they have except to say there is one or two significant development partnerships they have in place that will -- benefits of which will accrue to the joint venture. So yeah, I think that’s all I can really say.

I see, so their resources or the activity that they are working in China will become part of the JV, basically right?

Edwin, it’s very difficult to -- this is a great announcement, but we’ll have to see as we move forward. As Peter said in his prepared remarks, we’ll have control the distribution channel for both companies.

Okay, great.

And I would just say again, I think globally, Photronics is recognized as being the preeminent partner to do development with in memory. And I think, DNP has the same reputation in logic. So by coming together, as I said earlier, there is no one better as far as the customers go to develop new technology nodes with. So the JV allows the natural strength of both of us to flow into that market. So it provides a one-stop shop for anything the customer needs in photomask, where the -- I think, the industry perception is it offers the best of everything.

Okay, great. On the business itself, you mentioned high-end memory is strengthening. Are you seeing that from the foundry mainly customers that you guys talk about previously or is it from the main former partner Micron?

More of that is coming from the foundry memory business. Micron is still a significant customer of our, but they continue to build the majority, not all of the majority of the photomask, so the uplift in memory with primarily other memory customers. And we expect to see more of that in the coming quarter. And I think it’s also true that as we move into the second half of the year, we expect to see more outsourcing come from Micron as well.

Okay. That’s helpful. And then finally on the FPD side, looks like business is going well. Just curious, I remember previously when you guys run full utilization, you have pretty much have a choice to push more, shift more of your business as towards the high-end, because you only have so much capacity at that point and that allows you to cap because of the higher ASP and high-value that you generate for the high-end IC and ultimately generate better -- some incremental improvement in revenue. New tool coming in -- are you guys don’t do that still in the near-term and in terms of the new tools that you guys started installing in the third quarter, when should we expect that to start contributing revenue?

Yes. As far as FPD goes, just to give you a little more clarification. We were not loaded -- fully loaded all quarter along, the FPD business build through the quarter. So we exited the quarter loaded and we tried to time the installation of the new tools. So that once they come online, we can qualify them and ramping them very quickly to full production. There is no doubt that each of these tools, when they come online, will generally an uplift in revenue. But our real mission is to have them generate revenue uplift as well as immediately have a positive impact on our earnings and that’s critically dependent on where it's half loaded or all the way loaded. So we expect the current, I mean the installation and qualification, I think that we need tools about three-month process. So we don’t expect to see much impact from the new tool in that current quarter. We expect to see the impact in our Q4. Having said that we’re about 5 million below this quarter peak run rate. So the way we see it, we have seen run to step up in Q3 based on a full quarter of fully loaded tools and then we should see a step up in the quarter after that based on having a new tool that is rapidly loading and then during that quarter the check in tool gets installed and qualified and then the quarter after that we have the benefit of that tool to gain more market share and see our business step up. So we kind to see three sequential step ups in FPD as we first fully utilize current tool set this quarter, enjoy the benefit of the next tool that we're installing in Q4 and then in Q1 have the benefit of the second tool that we've installed in the fourth quarter, so it's really step by step by step.

Our next question comes from the line of William Stein with SunTrust. Your line is open.

Many of my questions already been asked and answered, but hoping you can comment on margins that are currently still well below the early 2016 level peaks. Do you think that you can get back there with any -- in any sort of reasonable time frame and what would be the biggest contributors to that ramp, is it revenue level mix cost controls anything else?

I think it's primarily high-end revenue. The cost controls are as we stated the operating cost or well inline, but truly high-end revenue and if we look year-over-year, I think we said in the prepared remarks high-end revenue is down, but we can get back there, we just have to have business taking FPD, high end memory and high-end logic. That’s where we need to get back to. The results for the quarter, besides from the top line being somewhat muted, demonstrated improved balance sheet quarter over quarter, so our cash position has improved, so we're well position for a ramp and we have installed capacity as to, Peter was saying we're not fully ramped with FPD with our installed capacity, so we can get there, but its customer driven.

So it seems like you have a pretty clear visibility in high end FPD based on customer demand, it seems like memory, I think most people could buy into that as well. Can you talk just a little bit about what gives you confidence that you will see that ramp in high end logic and say as we progress over the next couple of quarters?

Yes, I'll make a comment and then I would like Chris to chime in on the different calls that we're starting. So the current quarter really shaped up just as we thought it would three months ago. There is no big surprises for us, we basically guided flat and that's what we got. The only thing that I would describe as an incremental negative for the quarter was that 28-nanometer business in Taiwan was on the margin, not more negative than we had expected, we discussed on the call that as effect of the TSMC at the end of last calendar year had brought significantly more 20 nanometer capacities and it was creating competitive problems for our customers. So what we expect we'll generate a shift in our 28-nanometer business is that UMC in particular was granted permission by the Taiwan government to ramp 28-nanometer in China. And that’s important, because the Chinese government is giving all Chinese fab customers incentives -- financial incentives to build 28 nanometer chips in China. Today, there is no high-cave metal gate blast 28 nanometer logic full and production in China any kind of volume. So UMC will be the first. It will give them an unfair competitive advantage which is great for them and even I would say, better for us. But when that materializes, it looks by all indicators that the business will be very favorable for them for several quarters. So that’s what gives us confidence that our logic business is going to move in the other direction. In addition to that I made some comments about Korea, and Chris, why don’t you make some comments about the calls we have going right now?

Sure, Peter, thanks. So the 14-nanometer merchant business in general, wasn’t quite as robust overall as we’ve thought. I think that cycle was a little muted to the industry. We did complete calls and we are working on more of them now. But the difference now I’d say particularly in the last three to six months is the pull on those is really based on what we see as capacity need among the customers as opposed to just back up and nice to have. So we have a number of existing and also new 14 nanometer calls underway. That being pulled aggressively by the customer base, much more than we’ve seen I would say in the last 12 months and there seems to be a real need for that extra mass capacity coming online. At the same time, we have initiated calls in 10 and 7 already, which is a little sooner than we had thought and its relatively recent news, again last three or four months. So on the logic side those 14 and then the future nodes, there seems to be a real need-based pull right now among some of the larger chipmakers to pull those technologies forward. The last comment I'll make, you may have seen some things on 22-nanometer, which was a little bit of a no show node for a lot of logic chipmakers. We are seeing renewed interest in that node right now amongst some of our existing customers, and we have qualifications going on in that area as well. Those should proceed a little more quickly, because it’s leading edge, but it’s a little bit older technology compared to 14. So those all, in aggregate, are giving us a good amount of optimism, the market demand is there and the calls are in place to make it happen.

And just one qualification, Peter, you mentioned this dynamic with UMC in China. When do you see that ramping? Is that sometime in the current quarter or is that one or two quarters from now any sort of ranging on that would be helpful.

We know they are running very hard at it. So I really don’t want to speak for them, but if you look at their public announcement they expect the 28 to be down sequentially, but up in the second half of the year. So that’s what they said and that’s what we’ll say. So that -- and I think that’s very reasonable from what we can tell.

Our next question comes from the line of Stephen Chin with UBS. Your line is open.

Hi guys. Thank you for taking my question. This is Neil from Stephen. Regarding the JV with DNP, how does this change your previous outlook on China, whether as the known dollar terms or a percent of total revenue? And similarly how does the change your outlook for the number of China customers that you think you can start qualifying?

Yes, how it changes our outlook is, on the margin everything is incrementally better. We ramp to profitability faster. We hit -- the way we anticipated this in China, was really over a five-year period, two waves of investment. So we think, therefore make the second way just a little bit faster and we expect that where we plateau after the second wave will be incrementally higher based on being able to persist [ph]. As I said, what I would describe not as a supplier but a strategic partner. And then over the long run, we think our prospects to preserving the merchant market in China are going to be enhanced by coming together versus having the merchant shift captives. Because when you walk around China as we view quite a bit, there is no storage of money. There’s plenty of money to own anything you want there. What there is a shortage of is technology. So we prefer to have the Chinese customers focused on solving their pricy technology needs, not worrying about photomasks, but make no mistake about it, they have a plenty of money to build mask shops. There is no doubt in that, but they don’t have the technology to do it. So we make sure that they don’t need it.

Thanks. And follow-up on high-end FPD, are you still, how optimistic are you for the second half of the year or even going into calendar 2018 and on high-end flat panel display. Maybe just sort of -- for the display photomask industry in general, not that a big [technical difficulty]. But can you give us an idea of the sort of math or given cheap [technical difficulty] capacity, what the sort of mass is, what photomask demand might be from that amount of OLED capacity?

Well, if you look at, if you look around the world where the investments are being made, there is, there’s now 3G 10.5, in fact construction of 3G 10.5 factories underway in China, with I think very definitive plans for at least to more. So there is a lot money being spend in China specifically on G 10.5. There is also a decision we made in Ponju, in Korea. LG has a very large factory going up and they're right now, I think trying to finalize a decision between G 10.5 and G 9 plus OLED. So this is one place were a lot of money is being spent. The other place where tremendous amount of money is being spent is in AMOLED and that both in Korea as well as in China, in fact we shipped last quarter to what we believe to be in customers cases their very first AMOLED mass set into China and in the other customers case we believe we and another supply shipped their first AMOLED mask sets to their line. So there is tremendous amount of money being spend on AMOLED both in Korea and China. So we're very confident in the growth of that market and meaning something is not fully appreciated. There is actually two types of AMOLED, something that industry people describe as rigid AMOLED and then there is flexible AMOLED. And all the sexy new phones from Samsung and the A company take advantage of flexible AMOLED, that’s the A3 line at Samsung and beyond. But there is also something called, we call rigid AMOLED, that’s the Samsung A2 line and most of the capacity is coming online in China and this is going to serve the second tier handset suppliers probably will find its way into tablet, computers replacing standard LCD displays and there is a lot of demand that we can see in the next couple of quarter in that market segment as well as which we have the master before you go on to flexible AMOLED displays. So there is a definite widening of the AMOLED market in front of us broadening of that market and we intent of course to take advantage of both of those market segments aggressively.

Alright, your next question comes from the line of Tom Diffely with D.A. Davidson. Your line is open.

So, first Sean a question on the CapEx, I'm surprised the income is down a little bit, just because you're not going to share that $20 million to $30 million essentially with Dai Nippon?

It could come down but we decided not to do suggest it, because the deal just closed yesterday and if we're consolidating it, it's still would be part of our CapEx, it doesn’t change.

Yes, in a sense and you're going to share the cost that ramp that $160 million facility over the next couple of years, does that change the plan for your current cash, roughly $4 of net cash per share?

Not necessary because as Peter alluded to it's going to come out of our Taiwan subsidiary, but the total plan has not changed over the next five years, in essence, in theory, yes, we're sharing it, but it's still going to come out of our operating cash flow, the CapEx will be on our P&L can be consolidated.

All right understood. So when you look at the joint venture, it especially looks like an extension of the Taiwan joint venture, so I'm curious was part of the decision driven by the big anchor customer here?

Well, I think, generally a big anchor customer is part of the de-risking of our initial investment in China. But as far as the partnership and the JV goes, I would just say again, the big anchor customer does see us as a partner and our objective is to have every other memory logic manufacturer in China, [indiscernible] exactly the same thing as a partner, not just a supplier. So when you -- UMC has a model for what we’re trying to achieve generally, in China.

Okay. And obviously, it looks very attractive you’re reducing your CapEx over time, potentially. You’re taking away your biggest competitor and you created probably the downward supplier in the fastest growing region. But what about the technology, what’s in place to protect your technology, both against your competitor Dai Nippon as well as the local market?

Well, I mean, again, we -- the way we've articulated the agreement with this JV, very similar to how the agreements were written for our JV in Taiwan. And we've seen no technology leakage from -- in either direction as a result of three and a half years of working together. So I think we’re pretty confident that likewise, there will be no technology leakage in China.

Okay, great. And then finally, on the flat panel side, essentially on the flexible side, have you seen a bit of a delay from initial plans as to when the capacity is ramping? Typically, we see big ramps ahead of marquee phone launches, but your ramp seems to be later in the year.

If you look at what we have done, right, we've staged our tools, and as you said, we kind of -- we pushed the installation tools back a quarter to do our very best to time them, to their ramps in the market. So that’s our job, right. We can’t control the market, but we can to some degree, as Sean always says, control the timing and the delivery of our CapEx to maximize our financial returns and that’s what we have aspired to do here and we’re, I think very confident we’re going to be successful with it.

Okay. And just want to make sure was there a change in the timing of the market as opposed to perhaps shares shifts?

No. I don’t think we’ve lost any share. We're clearly on a mission to gain it. So but we’re not on a mission to punish our P&L to get that job done.

Okay. Thanks. Appreciate your time today.

And our next question is from the line of Patrick Ho with Stifel. Your line is open.

Maybe just as a follow-up to Tom’s question on the JV, I understand the mitigating of cost and the sharing of the risks, having a partner there, but at the same time that also eventually takes away from some other future revenues and profits you guys could have earned on your own. Was this, I guess, strategy or these initiatives based on potential eliminating a very viable competitor that could have gone into China on its own and now you’re actually sharing the future profits down the road?

Well, again Patrick, I think, our view is that by coming together, we are create a more competitive merchant and China that can do a better job taking care of customers. We've doing this for 40.5 years, almost 49 years. Actually, yes, all, in a month it will be 49 years we’ve been doing this. And our culture always has been for 49 years, to take care of customers and to be a little cost producer. So 10 years ago we added technology to the market basket of what we provide the customers. But in our mind, this is all about the customers. We are doing our best to provide them with the best products at the best price and by doing what we’ve done, we believe we can satisfy that mission and it’s very much true to what we have been, what we are and what we expect to be in the future.

Okay. Maybe as a follow-up, maybe Sean. In terms of one of the earlier questions on margins. As the AMOLED business begins to ramp and I don’t know, you don’t have to get quantitative, the qualitatively, how do you look at that ramp and its potential impact to margins. Because I guess you have startup costs, you have the additional riders that are going in. How do we look at the margin profiles for the rest of the year as the AMOLED business ramps and maybe into 2018, where I assume that as you get to full utilization on the new riders, you’ll see a margin expansion?

As Peter alluded to in his prepared remarks, we’re, we weren’t at full capacity, but it did ramp. April, we exited, we did about 25 million. We're targeting with the capacity that we have the 30 million. We stated in a previous call or last quarter conference call I believe, that with the new riders we should get up to hopefully 40 million over that per quarter. So we would expect margin expansion without getting too specific, as we don’t disclose margins, but we believe it’s a great opportunity, I would have made the investments.

Ladies and gentlemen, there are no further questions at this time. I will now turn the call over to Peter Kirlin for closing remarks.

Once again thank you for joining us this morning. We are optimistic regarding high-end demand trends for both IC and FPD as we enter the second half of the year. Plus the JV we formed with DNP in China will help us both compete more effectively in a strategically important growing region, creating a clear path to a successful merchant mask producer in China. Finally, we have the financial strength and flexibility towards pursuing organic growth, as well as strategic M&A. I look forward to updating you as we progress.

Ladies and gentleman that concludes the conference call for today. We will thank you for your participation and ask you to please disconnect your line.