Photronics, Inc. (PLAB) Q3 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen thank you for standing by. Welcome to the Photronics Third 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, Monday, August 14, 2017. I would now like to turn the conference over to Troy Dewar, Director of Investor Relations.

Thank you, Laya [ph]. Good afternoon, everyone. Welcome to our review of Photronics 2017 third quarter financial results. Joining me this afternoon 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. This afternoon we issued three press release those releases, 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 afternoon everyone. Today in addition to releasing our third quarter financial results we're also making two important strategic announcements. Each of which were outlined in separate press releases we issued since the closing of market trading. The first was an announcement of regarding our upcoming CFO transition. The second is an announcement regarding our next step as we geographically expand our business into China. I would like to begin with the organizational change regarding our CFO transition. Today we're announcing that Sean will be retiring from the role of CFO, a position he has held since 2002. During his tenure we've grown to be the leading merchant photomask producer with extremely strong balance sheet. Our financial position is good anytime during history of company and our finance organization under Sean's leadership has played a key role in bringing us to this point. I personally want to thank Sean for his support during my career in Photronics. Especially during my last 2.5 year as CEO. Sean I know I speak for many when I say that we wish you well in retirement and you will be missed. Sean's successor will be John Jordan. John's currently Interim CFO for AstroNova. He was CFO of two public companies prior to that. His wealth of experience will be extremely valuable to us. Especially as we continue to expand our business globally. I believe that John will be a great fit with our organization and he is quite excited to dive into our business including meeting as many of you as he can over the coming months. Sean has agreed to stay engage with us early December, to ensure smooth leadership transition. Moving onto our third quarter performance. We achieved sequential sales growth with modern improvement with IC and FPD. Well this is a positive step in the right direction. It is fall short of our expectations. Most notably in FPD with product mix skewed more towards mainstream yet again the revenue impact increasing unit volumes. On the IC side of our business, sales were generally in line with expectations with stable mainstream sales, growing high end memory and continued weakness in high end logic. With the slight uptick in sales we did see gross margins expand, how our operating margins were lower as we saw increase in operating expenses. Partially related to China as we have more people in the ground and we're shipping more products to Chinese customers. We've also continued to drive a significant number of qualifications and as discussed last quarter. This surge diversified our customer base and our technology portfolio which is essential for the mid to long-term health of our business. On our balance sheet, cash was slightly lower as we're ramping CapEx to facilitate growth primarily in FPD. This will likely continue over the next several quarters as we will see increase in CapEx in China. For the balance of 2017 and into 2018, we expect our markets to improve with the exception of high end logic, where recovery is still a few quarters away. Our high-end memory business continues to grow and we anticipate continued volume growth in FPD as we install more capacity. However maybe another quarter or two before product mix turns more favorable towards high-end sales. In summary, we're still very optimistic recording the long-term growth expectation of all our high-end markets, but are seeing slower recovery in high-end logic and high-end FPD as dictated by our largest customers. Inherent, our high-end business both IC and FPD is significant customer concentration. For example our largest FPD customer sometimes represent close to half per FPD sales. Similarly, our largest IC customer can be approximately one-fourth of our IC sales. While this is good for us, orders from these large customers are strong. It can present challenges for us when their short-term photomask demand slips and this can happen for a number of reasons, some more obvious than others. Like many suppliers to the high-end semiconductor and display sectors. Demand of customer concentration has increased through industry consolidation either through M&A activity or due to technology attrition as fewer companies can justify the investment required to deny the manufacturing high-end products. For our merchant photomask companies there is an additional complication as more of the industry is being served by captives. This mean you must invest in areas which complement the captives and we can sustain leading market share by providing high technology in masks and great customer service for they're better served or relying on a merchant rather than installing more production capacity. This seem as customer concentration is important to understand that it helps to explain the short-term volatility of experience in our high-end business and the reason why our China investments are so essential. One-year ago, we announced an investment to spend our IC manufacturing presence into China. At the time we spoke on the growing importance to this country to the semiconductor market and our customer's desire for us to establish a manufacturing facility there. Today we're following it up with the next logical step and the new FPD manufacturing facility to serve the growing customer base in China. We've entered into an investment agreement with high tech zone at Hefei, where we've build the largest and most technically advanced display mask factory in the country. We're installing the most advance mask rating [ph] equipment for display allowing us to produce mask up to and including 10.5 plus and advance displays such as AMOLED. I'm very excited about today's announcement as I believe the growth potential for display market in China is as attractive potentially even more so than the semiconductor market. Currently in China there are 27 display as in production with approximately 15 more being constructed or planned. Many of the new fabs are high-end fabs targeting large format LCD displays for TV or AMOLED displays for mobile application. China currently occupies third place in global panel production, but is projected to move into first place in the next few years. Today there are no merchant display photomask producers in China that provide the advance technology we plan to offer. We will be the first and I believe this first move or advantage will help us to gain our market leading position in China's growing display photomask market. We selected Hefei, for two reasons, first the leadership in the city as well as the high-tech zone were most welcoming over our proposal and demonstrate the value they see in the establishment with photomask manufacturer in their area by providing us with attractive incentives. Second, Hefei central location places us to serve customers in the region as well as throughout all of China. Along with the investment agreement, we've also secured customer commitments from two of the largest domestic panel producers in China. These commitments will help us to offset the risk of the investment by providing significant volumes for our new facility, which enable us to hit profitability targets quickly. Because of these commitments and the technology we will install we anticipate that our Hefei facility once ramped will be our largest FPD facility in terms of sales. We are the only mask factory in the country capable of making G10.5 plus masks. These masks will be in high demand due to the increasing capacity of G10.5 panel production in China. ASPs for these assets are much higher than we, any product we currently sell which gives us confidence regarding the sales outlook for our new facility. FPD qualification times are much shorter than IC and based on the benefits of lessons learned in Jamen [ph]. We expect the timeline of FPD initiative to be significantly shorter than IC and our plan to be in production early in the spring of 2019. Regarding our IC project in Jamen [ph], we're pleased with the progress of the construction and activity continues to ramp there as we move forward our project plan. The closing of our joint venture with Dainippon is on schedule and we anticipate closing this transaction in Q4. Even though we're facing short-term demand challenges, we don't want to lose sight of our long-term opportunities that we're working hard to develop. High customer concentration, short lead time and limited visibility accounting to short-term volatility in our financial results. However, we're excited that the long-term opportunities we see across the high end markets particularly in China. Geographic expansion along with technological advancements are providing us with the opportunity to gain market share. It's very clear that China will become an increasing important region for us and as imperative it will execute well against our business plan, in order to establish its successful enterprise than that country. I'm confident that team we've placed will accomplish this and reassure by the fact we've built a balance sheet to make these investments. I remain optimistic about our long-term outlook. I will now turn the call over to Sean for more details in our Q3 performance and Q4 guidance.

Thanks Peter and good afternoon, everyone. Third quarter sales were up $3.3 million sequentially due to increased IC sales of $2.5 million to increased sales of $800,000. The increase in IC sales were principally driven by strong growth in high end sales to $23.7 million up $1.7 million sequentially primarily due to strong high end memory demand. The high end memory market has been positive for us during 2017 and this quarter marks third quarter consecutive quarter of sequential sales growth in high end memory. High end logic on the other hand has been soft. As our large IC customer has experienced market share loss of some of their advance nodes particularly 28 nanometers. Our customer does expect the recovery but that has been delayed until 2018. So any meaningful uptick for us and high end logic is likely a few quarters out. As forecasted, we did remain sold out of capacity in FPD. However, we experienced higher mix of mainstream relative to high end winning the sales growth we were able to achieve. Within high end we did see good growth in AMOLED demand especially in China. Looking forward, we now expect to capitalize on the ramp of high end sales to begin in 2018. With our increased capacity we will be poised to benefit from this demand increased when it materializes. Speaking of our capacity increase, the first of two writing tools was installed during the third quarter and the second tool will be installed during Q4. On a year-over-year comparison IC and FPD sales were down 716% due primarily to decreased high end business. Gross margin improved sequentially due to higher volume, operating expenses including SG&A and R&D increased by $1.8 million principally due to increased qualification activity and to lessen extend additional expenses related to our growing business in China. We were seeing additional operating expenses as our activity in China starts to gain momentum plus we experience high freight cost as we're importing more products to customers in the country. As a result our operating margin was 4.7%, sequentially tax expense was lower a certain non-tax benefits were realized. Additionally foreign currency exchange loss we experienced in the second quarter did not repeat. Minority interest increased $1.1 million sequentially as our JV in Taiwan returned to profitability. Net income was $4 million or $0.06 per share more than double the net income in Q2. EBITDA was $28.5 million and $111.3 million to the last 12 months. Operating cash generation was $27 million for the quarter and we spent approximately $25 million on CapEx. As a result, our cash balance and outstanding $341 million with net cash at $277 million. Based upon our latest projections we anticipated spending approximately $110 million in CapEx this year with approximately $45 million towards our China IC and FPD investments. As implied in our guidance CapEx is expected to increase significantly in our fourth quarter as we spend more on China. Also, why we are not giving precise 2018 guidance at this time directionally we anticipate CapEx to be higher next year. Fortunately we have a strong balance sheet that allow us to spend on our investments. We also plan to take on some China-based debt over the next year or so to help fund our investments there. Before providing fourth quarter guidance, I want 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 businesses growing, ASPs for these assets are higher and relatively two numbers of high end orders can have a significant impact on sales for the quarter. Given those caveats we expect the fourth quarter sales to be between $108 million and $116 million. Based on this revenue expectation and our current operating model, we estimate earnings for the fourth quarter to be in the range of $0.03 to $0.09 per diluted share. As we enter the last quarter of our fiscal year, our near term business outlook is mixed. High end memory is looking good and we're increasing our FPD capacity to grow our business in that sector. However the timing for recovery in high end logic and high end FPD is still uncertain. Due to our financial discipline and well cost manufacturing approach we're confident in our ability to maintain profitability until those markets full year recover and are prepared to serve our customers as their mask demand increases. Longer term we're investing in our future by investing in high growth, high return projects to create more value for our shareholders. Before we turn the call over to the operator for questions, I would personally like to thank Photronics board, Deno and Peter for tremendous role. I also wanted to thank all of the employees of Photronics for their support. I've never been associated with a company from top to bottom that has as much dedication and desire to succeed. Best wishes to the entire global team for continued success in the future. Thank for your interest. I will now turn the call over to the operator for your questions.

[Operator Instructions] and your first question is from William Stein with SunTrust. Your line is open.

As I recall your initial foray into China for ICs later turns into a joint venture. Now you're entering the China market for flat panels, is that likewise likely to become a joint venture as well or is this more likely to remain a wholly owned business for you?

William, we always to have to keep an open mind regarding industry consolidation. So and we keep an active dialog with all the industry participants that had end, which will continue to do - having said that the demand profile for FPD in China is really quite compelling. So the bar would be I think very high for us to entertain sharing the profitability we expect to see from that activity with another party, but certainly not out of the question.

Thanks for that. And then one follow-up if I can. Peter, you've noted in the past that often when there is a new geography that starts to ramp that often times it's sort of easy for companies to be lured into thinking that it's all new growth and that it often or always in the past has wind up being just a transition from one region to another. Is that, what you believe is going to happen with the flat panel display market that perhaps it goes from the majority maybe in Korea today that is moves to China? Or is this different this time and you actually see new growth in this market?

Yes, we would - again - everything is a matter of degree. We think China for FPD on a relative scale is more white space based on the end market demand itself in China plus the dramatic proliferation of displays in almost everything that we touch. So there will be some shift certainly of large formats [technical difficulty] because if you [technical difficulty] inherently much more efficient for manufacturing displays of 55 inches and greater in size, but beyond that we see I think growth in the display market at least in China and Korea. The Japan market is clearly in fact declined and it is likely that the Taiwan market will be as well.

Great. Thank you.

Your next question from Edwin Mok with Needham and Company. Your line is open.

So first question I have on your guidance, just wanted to be really clear. During your commentary, it sounds like everything has become more changing dramatically from this quarter to next quarter, but you have the new FPD 2 coming online, so any wide midpoint guidance flattish, is there any kind of more mixed shift we should expect in IC or anything you can point to us.

Well what we see in FPD in the current quarter in front of us, is photomask sales in FPD are driven by new product development and new product launches. Nearly all of the flexible AMOLED capacity in Korea is going to be running volume production for one or two customers. So we actually see the market in Korea in the current quarter to being down significantly. Running against that, last quarter China sales represented more than 25% of our FPD revenues. So we expect unit growth in China in the coming quarter and running against is a significant down draft in Korea. And then in the quarter following that, I think everyone - the business moves there is a tremendous amount of capital being installed in Korea as we speak, so there should be significantly more AMOLED capacity available to the market in Korea as we approach the end of 2018 and of course that new capacity is going to require new designs to fill it. So over the next two quarters, that's kind of the market as we see China continue to grow and Korea with the shift of high volume manufacturing in the current quarter and then reverting back to more of a product typical demand environment in the final calendar quarter of the year.

Great. Thanks for explaining that dynamics, actually very, very helpful. Sean, moving onto the new China facility you talked about and this $116 million [ph] CapEx. Is that way to kind of about, I think you mentioned on the quarter you expect it to be the [indiscernible] logics production facilities, right? So if I understand that correctly then that means you would expect this facility absolutely ramp to add like what - more than 50% increase in incremental revenue is that the way to think about it. And you said, you will start producing in early 2019, right? How long does it need to fully ramp [indiscernible] consume that $116 million [ph].

Given the customer commitments that we have, we expect that within the quarter or two, that facility will be at full production. So we have very strong commitments from customers, regarding the revenue potential. Yes it's only more than 50%. Sean would you like to make some comments about what we think China is going to?

I think if we look at [indiscernible] Peter, we would expect once both entities the IC and FPD are fully ramp, our top line could grow much, if not more than $115 million. Significant growth opportunities in both areas.

Okay, great. That's extremely helpful. Last question just on, Sean you talked about I mean we just expect - once talked about the OpEx, you talked about this quarter, you had some additional headcounts in China, also some R&D program, but if I did the math correctly in your guidance [indiscernible] OpEx would come back down a little bit in the coming quarter. Is there a new range of OpEx, that we should think about or how do you think that OpEx will mature?

Edwin its good point. We haven't specifically guided to OpEx. It did increase during the quarter primarily related to increase [indiscernible] that Peter mentioned. And we talked about the end of last call. We certainly pride ourselves. And company has historically keeping cost well in China as we add [indiscernible] into the system vis-à-vis China or somewhere else we try to extract cost elsewhere. So I don't think we have a fundamental change just yet, certainly when both facilities are up in running we'll have to establish new benchmarks and targets, as we move forward but I don't think we're straying from what we had pride ourselves with company as part of themselves on over the years.

Great. Just lastly Sean, it was a pleasure working with you all this years. And good luck with your retirement and hopefully again, [indiscernible].

Edwin, thank you very much. I will just say in closing. There's a tremendous team here globally and they will be successful and my kids are counting on them to be successful.

Your next question is from Patrick Ho with Stifel. Your line is open.

Sean, I want to extend my personal best wishes to you, it's been a pleasure working with you all these years. And I guess, you could use more time to watch I guess the [indiscernible] and Red Sox and see if that gives you more time to enjoy or not enjoy what happens there. So in all seriousness I do wish you the best.

Patrick, thank you very much.

My first question goes on the display side of things because although I see the uptick in the Chinese market especially on the AMOLED side. You do have a large customer that is ramping their capacity as well as their business in terms of, their uptick. Can you explain what I'm missing there especially in the near term when they're seeing an uptick particularly with one customer ramping up their OLED base displays as well? What am I missing in terms of the uptick that should be occurring at least over the next couple of quarters?

What's going on there Patrick for us is as I mentioned in my prepared remarks, historically a tremendous fraction of our overall FPD revenues and what's happening in the FPD market is presently it's very fluid with many moving pieces, as far as that large customer goes, their AMOLED business is really bifurcating into what the industry describes as rigid and flexible. And they also have their own captives, so they can pick and choose what fraction of their business they decide to outsource. And it's no surprise that ASP of the flexible AMOLED mavs [ph] is substantially higher now than the rigid ones. So in the current quarter we saw an unusually high concentration of rigid AMOLED as from the customer and very few flexible ones. And again I will just say one more time, this is what for us makes the movement into China so essential. And so there is no credible competitor there in the high end domestic and we clearly have very as a result of partnership with that customer a very excellent technology and we need to maximize the value of it globally. So hence the - our focus to shift our footprint. If you look at the display market, maybe some more color. We think that photomask market for displays this year present it looks like it's going to be back to 2015 levels and almost all the contraction in the market, has happened in Korea with some contraction in Japan. The merchant market in Korea has shrunk even more year-over-year. More I would say between 20% and 30%. So for us it's quite essential that we aggressively grow our business in China.

That's helpful. Peter. Maybe then as a follow-up in terms of the high end logic. I understand where some of the weakness is coming from, but at the same time one of the your Korean customers is starting become more active once again particularly at the leading edge. Can you discuss how you're looking at that market segment whether it's a timing of when your large Korean customer ramps up their next generation leading edge IC masks?

Well I'll make some comments and then maybe Chris can chime in. we're clearly working with customer to best support and we do see I think some upside as they aggressively go after the foundry market. The other thing I will say is, our high end revenues net we're right as Sean described, but memory was actually up more and logic was down more and that's kind of hidden in the numbers and the problem in the logic market was in Taiwan. So Korea quarter-over-quarter was pretty stable. So Chris you want to make some comments on the qualification etc.?

Yes I can make some general comments on, [indiscernible] specific customer situation. Yes Patrick - we have a large number of qualifications going on now, 14 nanometer logic doing some seven, some five actually even little on 10 nanometer so far few engagements on that. And on the memory side, we have 2X, 1X, 1Y DRAM qualification, so really robust pipeline on those things. I think the memory, the strength in the DRAM market has sucked up a lot of right capacity inside captives, so getting back to that particular customer you asked about, what was maybe a year ago kind of a slow rolling qualification for them and high end logic is really accelerated over the last I would say three to six months. So they're needing external capacity for logic in a much greater way then they had in the past. So that is picking up momentum partially it's DRAM sucking up a lot of their internal capacity and partially its them ramping I think more aggressively some of their high end logic nodes. But as we know the timing of when these things become significant commercial opportunities is always difficult to call. And can also say that the US manufacturing side of that particular customer seems to be in the mode of running more logic applications for some of these I'll say marquee customers. So that's a great opportunity for us because we have the only high end merchant side in the US.

Great and final question from me. As you build up both of your Chinese IC and display ramps is there a way to I guess use the ramp up of people for both of those sides or are they kind of their own from an OpEx perspective their own. Basically their own businesses that you have to ramp up or can you be fundable be in ramping up the OpEx on both those ends.

We have a similar situation right now in Taiwan, where we have an FPD factory and we have a IC factory. And there is some benefit specifically in the country, you have one senior professional in the functional support areas and then junior level individual sitting in the other factory and maybe one senior and one junior and then in one location, a junior individual and another. So there is some overlap and benefit on the OpEx side, also on the sales side. Beyond that, as we - as I mentioned in my prepared remarks we've learned a lot of in [indiscernible] regarding what we need to do to build the facility in China and some of the people as you construct the factory, they're involved in the early stages not involved in the later stages, but kind of creating a pipeline of experience from IC to FPD, that should I think make the FPD project run more smoothly and be faster because of that. So there's a lot of leverage in the facilities construction and then there is modest leverage when we're in full blowing operations in both sites.

Great, thank you.

[Operator Instructions] your next question is from Tom Diffely with D.A. Davidson. Your line is open.

I'd first like to echo's Patrick's steps on Sean it's been a pleasure working with you last 15 years. You truly have been one of the class acts in the space and well-being this going forward.

Thank you very much, Tom.

So maybe just jumping on the flat panels display side. I was just curious at this point, can you count the number of customers you're working with, where those customers are in their development projects and when do you think they get to large scale or full scale production that would benefit you the most?

Well as far as China is concerned, last quarter we shipped AMOLED [indiscernible] sets before customers. I think those are the only four customers in China right now with AMOLED in what I would call a developmental mode. It's hard to gage how quickly they well ramp. I will say, one of those four, actually a second set of mavs [ph] within the quarter and [indiscernible] in the prior quarter [indiscernible] the first. So it kind of feels like we're two quarters away maybe from starting to see significant ramp of the most - of the leading edge of that customer base, but that's very hard to tell at the present time. But there is a lot of, so there is a lot of factories in China and most of it right now, it tends to be G6 smaller but some of it is, G6 LTPS so it's pretty complex technology so it's funny because if you, our mainstream FPD business grew last quarter. It grew units end, its grew in ASP because of the LTPS mix in China. So anyways, if you look forward most of the or nearly all of this wonderful bubbles that's going through the equipments phase has yet to run volume in the photomask space. So we look at china and from the second half of 2018 onwards, is what we really expect to start to see the ramp will be in AMOLED, it will be G0.5 and greater, it will be G10.5, G11 but there is a big wave coming.

And I would like to make one other comment, this trend we've talking about I would say almost the last year or two on the complexity of the FPD masks using more things that people are used to on the IC side like OPC and phase shift, generally increasing the value of the masks that's really happening and accelerating. So we're starting to see FPD masks although large format look more like advance IC masks. Not like today's but that trend is continuing and that's important because that puts a lot more value into the patterning and the mask technology from ASP and lithography perspective, so that trend seems really solid for sure.

And it sounds like your industry projections are for roughly 20 new OLED fabs over the next several years. It sounds like you will at least be in position to serve almost all those.

Yes that's clear, our goal. This quarter for the first time revenues into China were more than 10% of our total revenues and as I said in FPD, they were more than 25%. We believe it will be a halo effect of the fact that, we're making an investment in China before we're actually up and running. So it's I think not unreasonable to believe that we could reach a market leadership position in China before even actually start manufacturing there.

Okay and then just on the near term basis, you talked about how the mix was little unfavorable, higher and rigid versus flexible. I guess it wasn't clear. Do you expect that mix to come back towards flexible overtime or did you think it was going to stay kind of rigid for a bit?

What we said was for the current quarter most of the flexible AMOLED capacity is in very high volume production with no room for product development. If you look at the industry just projections generally. The amount of flexible AMOLED capacity in Korea the projections are more than double by calendar year end. So not only will the big bubble of the September product release should be through the system but it will be lot more capacity looking for products when we reach the end of the calendar year. So based on that we think the mix will shift back, but we'll see that's generally what happens in FPD. When there is high volume runners mask demand goes down, when volumes abate mask demand goes up and we expect to see that situation as the year ends because a lot of more [indiscernible] capacity is coming online and the volume bubble should be through the system both working through our advantage.

Okay, now it makes sense. And just going over to the IC.

Just Tom and enhance reason for delaying the second tool and putting it into production. At some point in this quarter and maybe not even until the early until next quarter - installation start in the fourth quarter whether it finishes it or not we will see.

Okay and then switching over to the IC side of the business obviously it sounds like there is a lot of qualifications going on right now, what's been the typical lead time between qualifications kind of revenue drivers for production?

This is question we get often Tom and it's a complicated one, we usually guard band it I think six months from call start to revenue would be kind of benchmark for speed. Sometimes it can 18 months or longer, so don't mean to get wishy washy answer, but it's pretty complicated and it varies by the number of levels or calling. If it's a new node or a repeat node, but I would think you could say 12 months from a start is a pretty good target for call being to revenue for set sort of opportunity.

And is it similar to rough memory and logic?

It's pretty similar. Yes logic tends to be a little bit longer, those calls tend to be more complicated just because of the variety of layouts and structures, customers use, memory tends to go a little quicker but generally it's not dramatically different.

Okay and then finally I'd like to end with a little zinger for Sean on the operating model, but unfortunately it's working pretty well right now.

Tom, just to add to Chris's comment. FPD unlike IC is usually 30 to 60 days it's a much quicker qualification. So that's also again one of the reasons why we expect our FPD facility to ramp quicker due to qualifications much shorter.

Okay, thank you.

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

Thank you once again for your interest in Photronics. As you can tell these are exciting times for us. We're managing through short-term demand challenges in some of our high end markets. Well also investing in our future growth with the construction of two new facilities in China. Our balance sheet remains strong positioning us to make investments in growth we've had planned over the next few years. Finally as our changing leadership team works together towards achieving our corporate strategy objectives I'm confident we will be successful. I look forward to updating as we make progress.

Ladies and gentlemen, that concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line.