Good day and thank you for standing by. Welcome to the Photronic's Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded Tuesday, December 13, 2022. I would now like to hand the conference over to your host, Richelle Burr, Executive Vice President, Chief Administrative Officer and General Counsel. Please go ahead.

Thank you, Richelle. Good morning, everyone. Welcome to our review of Photronic's fiscal 2022 full year and fourth quarter results. Joining me to [indiscernible] evaluate ongoing performance and reconciliation of these metrics to GAAP financial results is provided in our presentation peril. At this time, I will turn the Frank over -- I will turn the call over to Frank.

Thank you, Richelle, and good morning, everyone. Q4 was solidly finished to a great year. Revenue grew 24% in 2022 as we achieved our fifth consecutive year of record revenue. Both IC and FPD generated strong growth as design activity remained robust. We saw annual growth across nearly all products types. It remains clear that our broad technology portfolio, operation effects and close customer relationships have met us the market leader. Q4 revenue was less than third quarter revenue, with demand slowing in high-end large lastly. Our investment will be indicated by the current semiconductor industry downturn as design activity remains relatively strong. There was also some negative impact from depreciation of Asian currencies on FPD business. However, we believe that factor causing this slower demand with the transit, and we maintain our positive view on the long-term demand trend. Gross margin and operation margin was essentially flat compared with the third quarter as we motivate the impact on lower borrowings by closely managing our costs while we continue to benefit from strong pricing. We also realized a foreign exchange gain that John will discuss in more detail later. The end result is we delivered EPS of $0.60 for fourth quarter. Looking now to the industry outlook while we believe the demand trends in addition to customer capacity expansions are intact in the long term. The near-term picture is cloudier due to current market on service. Factors such as high interest rates, rising inflation and slowing GDP are already having a negative impact on some sectors of the electronic product supply chain and could potentially impact photomask demand. Moreover, adding to uncertainties is that U.S. government's new export restriction imports from China on certain semiconductor technologies that may further impact the Chinese IC industry. So far, these actions have had…

Thank you, Frank, and good morning, everyone. Revenue in the fourth quarter was lower sequentially as softer demand trends were experienced in both IC and FPD primarily for high-end products. Our product diversity and global customer base helped mitigate high-end [indiscernible] with mainstream revenue higher for both IC and FPD. We have invested in tool sets for a broad array of technologies and nodes, enabling us to support our customers' technology road map across both high-end and mainstream. As a result, fourth quarter revenue of $210 million was down only 4% sequentially despite the declines in high-end product revenue. Our conversion teams have done a great job of working with customers to identify opportunities, and our operations teams were effective in supporting this demand with on-time execution, delivering the highest quality products that enable our customers' success. IC revenue of $156 million in the fourth quarter was up 25% year-over-year and down 3% sequentially. Although high-end revenue was lower quarter-over-quarter due to some reduction in agent foundry logic demand. That business has been significantly better than last year's fourth quarter due to some increases in capacity through the year. Midstream revenue improved on continued strong demand, especially in Asia. FPD revenue of $54 million was down 8% quarter-over-quarter and 3% year-over-year. Demand from mobile display masks was lower as panel makers focus on purchasing current products for new premium smartphones and not releasing new designs. G10.5+ demand was also lower during the fourth quarter. We were successful in picking up mainstream [indiscernible] to maintain higher capacity utilization. Gross and operating margins were essentially flat in the third quarter as improved pricing and continued cost discipline offset the negative impact of lower volumes on operating leverage. Gross margin of 38.2% and operating margin of 28.8% are already within our target model…

[Operator Instructions] Our first question comes from the line of Hans Chung with D.A. Davidson. Your line is open. Please go ahead.

So first, so it seems like you have a pretty good gross margin for the quarter. And then just wanted to kind of deep dive back what's the driving factors that I know you mentioned some cost management and then the pricing is still favorable. So just any detail on that? And then how should we think about the gross margin in 2023?

The pricing environment has been very good, so our pricing is stronger than it has been historically. And we expect that pricing to maintain. We've seen even as demand is still strong, but not quite what it has been. The pricing holds up, we have pricing agreements across the Board in Asia, they've held, as I mentioned, as demand is not quite as strong. We did -- we have had premiums as people gain [indiscernible] to move up in extra from mainstream delivery sense has been much more extended than it had been historically. Those premiums are less predictable, but through the fourth quarter, both pricing and premiums have held up. So a combination of change in mix with some of our operations taking up business and improving their margins and with sustained pricing strength, we think we will stay within the margin ranges that we've been experiencing.

Okay. And then next question, just I know you mentioned the recent impact from China, the restriction that minimized our business. So -- but you also mentioned there is still some uncertainties. So I just wanted to kind of get more understand the index, what's the potential risk from new China export control? Or is any indirect impact from that?

So far, Hans, we've been -- there are a couple of factors. One is our business in China is primarily mainstream. So -- and most of the restrictions that are issued to prevent leading-edge technology from leaking into Chinese military primarily. So those restrictions to some extent, have affected us, but we've been able to essentially figure them all to understand and work with them. So, the restrictions have affected us very over the past three years since they started imposing them. I think that if they stay in the leading-edge technologies, we're going to remain unaffected but we spend a lot of effort to understand the restrictions as they're imposed and to make sure that we reach today with them a lot. So, so far, not much effect. There has been some, but very minimum, and we expect that to continue. And as restrictions continue to get issued, we'll continue to assess how they affect our business and work within new restrictions. Hopefully, we'll continue to experience the same minimum effect that we had because they're directly primarily at leading-edge technologies where we're not engaged.

This is Chris. I might add one thing to that on the -- if there is a positive side to this since the leading edge has been kind of restricted in China, a lot of that capacity can deploy to midrange and mainstream. So that's creating a fairly healthy design pipeline have been ranging mainstream nodes in China. I'm just seeing that in the local facility. So -- and those are sweet spot nodes for us, particularly how we're tooled up there. So that's kind of a situation. But fortunately, that's kind of a positive knockout effect for our local business.

Thank you. And one moment for our next question. And our next question comes from the line of Gus Richard with Northland Capital Markets. Your line is open. Please go ahead.

About six months ago, to pan photomask was spun out and sold to private equity. And I'm just wondering, given that transaction been a little bit of time, how has that affected the market or hasn't it?

Richelle, are we still have that same difficulty at up.

You're loud and clear, sir.

Thank you. We have are there other questions?

Did you not hear Han's question?

I did not.

Hans, could you repeat your question, sir?

Yes. Can you hear me?

Yes. Thank you, Hans.

This is Gus. Real quick. To pan photomask that spun out about six months ago. It's been in that state for a while now. And I'm just wondering how is that impacting the photomask market? Or is it -- or as things remaining the same?

Gus, Thank you. Basically, we don't see a major change in the business model, [indiscernible] since their spin-off they have made major capital investment even announced some projects in Texas, but nothing materialized. So at this moment, from customer side, from our side, we haven't seen a real difference.

Got it. And then in terms of the $130 million in CapEx, can you provide a little bit of color? Is that for de-bottlenecking? Or are you going to get some high throughput tools for mainstream? Is it going to be for high end? What -- can you give a little color on where you're investing?

Sure. Actually, in the past 15 months, the equipment data in photomask is also very long, same as in semiconductor business. So some tool will actually ordered one year and half ago. So the tools are coming in is, main progress of this tool is to serve the mainstream business expansion and also we don't have some tools which are going to the end of life. So we are doing certain tool replacement in addition to mainstream business expansion. However, the tool to be repressed our old tool, so the new tool has a better performance, higher throughput. So, we expect not only just a replacement, we will see some new capacity added to our overall production capacity.

Got it. And then the last one for me. You talked a little bit about demand softening a bit. Can you put that in context of lead times, lead times have stretched quite a bit from days to, I think, weeks or months. How has lead time changed over the course of the quarter?

The soften demand actually stated two, three months ago, particularly in the high-end side. But it doesn't really impact our fab utilization. We still have enough work. But of course, this time to customer has been reduced because the VAT level is lower. However, there are certain signs -- the demand for the high-end is coming back. At this moment, we -- it's a little bit too early to be very precise in terms of green recovery. But from our input from sales and customer, we do see the high-end level start to come back.

Thank you. And I'm showing no further questions at this time. And I'd like to hand the conference back over to Frank Lee for any further remarks.

Thank you, Richelle. Thank you for joining the meeting. I'm very pleased with our performance in 2022 and proud of the way our team has responded to the [indiscernible] and changing environment. We are well positioned to continue our success in the future and looking forward to updating you as we continue to make progress. Thank you for your interest, and have a good day. Thank you everybody. Thank you.

This concludes today's conference. Thank you for participating. You may now disconnect. Everyone, have a great day.