Earnings Call: Q3 2021

Aug 25, 2021

Ladies and gentlemen, thank you for standing by, and welcome to Photronics Third Quarter Fiscal Year 2021 Earnings Call. At this time, all participant lines are in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, this conference is being recorded, Wednesday, August 25, 2021. I would now like to turn the conference over to Troy Doer, Vice President of Investor Relations. Thank you, Sarah. Good morning, everyone. Welcome to our review of Photronics' 2021 Q3 financial results. Joining me this morning are Peter Kirtland, Our Chief Executive Officer John Jordan, our Chief Financial Officer and Chris Progler, our Chief Technology Officer. The press release we issued earlier 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 participants on today's call 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, Thank you, Choe, and good morning, everyone. We achieved record revenue in the Q3 as robust design environment led to growing photomask demand across our markets. This marks the 2nd consecutive quarter of record revenue. As you will hear from me from John in a few minutes, we expect another record quarter in Q4. The overall outlook for the semiconductor and display industries, including every company within these sectors continues to improve. Among other things, these indicators point to a boost in capital equipment spending by chip and panel makers that will require further mabs once installed. All signs point to a prolonged period of market strength. This is truly a very positive period for the industry, for Photonics demand and for Photronics. Gross margin improved in the quarter as the benefit from an increase in revenue on fixed cost absorption was aided by price increases For certain mainstream IC notes, operating margin also improved with additional upside due to a one time gain on the sale of fixed assets. These results place us within the range of our long term target model, well ahead of the 3 year horizon. Our growing top line and expanding profit margins are critical elements of our strategy and validate that we are on the right path. Cash flow generated from operations was strong this quarter. We bought new tools and continued our share repurchase activity, while at the same time increasing our cash balance. The significance of this cannot be overstated. We've invested and we continue to invest in organic growth for our business. These investments are targeted and aligned with our customers' technology roadmaps, supported by long term purchase agreements that provide assurance The newly installed tools will ramp quickly. This reduces the headwind to gross margins that can arise from underutilized tools and improves ROIC. The strong balance sheet we have built and maintained positions us to sustain this investment approach. Since 2017, annual revenue has grown 40%. 12% to peak core revenue was up 58%. We are on track to achieve our 4th consecutive year of record revenue, growing at a compound annual rate of 10% per year Since repositioning the business in 2017. Over that same time period, high end IC revenue nearly doubled And high end FPD revenue increased fivefold. This did not happen by accident. It is the anticipated result of a We are deliberate strategy to invest in areas that would generate the highest growth while also enabling improved return on capital. From a market perspective, our investment focus has been clear. Geographic expansion into China For both IC and FPD and technology inflection in FPD, particularly a transition to AMOLED in mobile displays. In addition to these macro trends, there are some drivers that are applicable in the photomass sector. Speedy use of EUV by Captus for high end IC and industry photomask capacity being sold out in mainstream IC. You also cannot ignore growing nationalism that is spurring capacity buildup in multiple regions, Including the U. S. And Europe, all of these factors support our belief that we are in a prolonged period of growth in photomask demand. A key element of our investment strategy is to align our operations with the fastest growing sectors in the markets we serve. In FPD, this has included both mobile displays and ultra large screen TVs. We've already seen the positive impact of past investments in these growth catalysts on our financial results. To maintain this performance, we continue to focus on high value and high growth segments of the market. This includes AMOLED for mobile, which is expanding beyond smartphones into large form factors such as tablets and laptops. AMOLED also enables diverse applications, including virtual reality headsets, automotive displays and even foldable smartphones. In addition to mobile displays, the emergence of premium TVs such as W OLED and QD OLED drives innovation It requires more complex photomask. Developing technologies such as micro and mini LED will also drive mass demand as they move Industry observers are expecting an increase in installation of display equipment in the next few years. If this happens, then what naturally follows is a period of demand growth for photomasks in order for the new tools to be used for manufacturing. Most of these investments are occurring in China, Korea and Taiwan. It is no coincidence that these are the very same regions of our FPD manufacturing plants, allowing us to invest in localities that are most closely aligned with our customers' operations. This year, we added 3 new FPD tools To our global operations, all three tools are now installed, 2 of the 3 contributing meaningfully to revenue during our Q3, And all 3 are running at capacity in our 4th quarter ahead of plan. The investment in these tools is supported by 4 Long term purchase agreements that had incremental annual revenue in excess of $40,000,000 This is a great example of our investment strategy in action. We secured the business through long term contracts, installed tools and ramped into full production ahead of schedule And we're now seeing the financial benefit as we generate revenue and profit from newly commissioned tools. And I see a driver of innovation demand has been node migrations. This happens not only at the bleeding edge, but also for mainstream technologies As customers move to smaller nodes to take advantage of lower cost and better performance. The latter has created shortage of supply in the mainstream market It's giving us pricing power in this segment for the first time in my 35 years in the business. Regarding the former, As the leading chipmakers, most of them kept its mask operations, use EUV to a greater extent in their IC fabs. A larger percentage of their mass capacity is being dedicated to EUV production. This means they need to outsource more non EUV mass to merchant suppliers. We have pointed to this trend over the last few years and we expect that it will accelerate as the leading logic and memory manufacturers move to more advanced nodes with progressively more EUV lithography steps. In December of last year, We communicate to you our long term outlook and strategy, providing a 3 year target model. Our performance during 2021 Plus, our outlook for the rest of the year demonstrates that we are on track to meet or possibly exceed these targets. Semiconductor and display markets are strong. Our revenue is growing. Margins are expanding. We are generating cash. The balance sheet is solid and we are aligned with several growth vectors to position us for future success. I really like where we are as well as the direction we are going. We'd like to thank all our employees for your superb effort Thank you, Peter. Good morning, everyone. 3rd quarter results benefited From strong demand trends, leading technology, broad customer exposure and tremendous market presence to deliver record revenue of $171,000,000 in the 3rd quarter, which was 7% over the record set in Q2 And up 8% year over year, extending the positive trajectory we established earlier in the year And we believe we'll continue into the Q4. We also completed our strategic capacity expansion in FPD ahead of the schedule, enabling us to more quickly enjoy the larger production output. IC revenue improved 5% quarter over Quarter and 8% year over year to a record of nearly $118,000,000 High end revenue benefited from Strong logic demand, especially in Taiwan and China. Mainstream also continued to grow on strong demand and better pricing As we realize the full benefit of the pricing environment on some mainstream IC nodes throughout Asia. Revenues to China overall were a record 10% better than last quarter and 46% over the same quarter last year. IC revenue into China represented 29% of total IC revenue. We are encouraged by the macro trends driving robust design activity across the semiconductor industry. Additionally, the outlook for wafer fab equipment continues improving, which means more tools in operation that will need photo masks to produce chips. All of this contributes to our optimism that Current trends will continue into 2022 and potentially beyond. FPD revenue of nearly $3,000,000 was also a record, 11% better than the 2nd quarter and 7% improvement over the Q3 of last year. Growth in AMOLED displays used in mobile applications was the largest contributing factor. Sequentially, G10.5 plus demand improved as our customers are bringing on new capacity and introducing new designs For ultra large screen TVs, mainstream FPD also grew as our new tools expanded our output. FPD revenue into China was 53% of total FPD revenue in the quarter, up 9% sequentially and 2% year over year. Similar to IC, we expect current demand trends to continue in FPD fueling continued growth From a full quarter of that new capacity, mobile demand should continue to be the growth factor as more smartphones, tablets and laptops Adopt high value AMOLED technology. Elsewhere, there are signs that the LCD pricing move higher over the last several quarters is ending, meaning the LCD boom is nearing an end. That would be supportive of new design releases as panel makers move to offer Margins improved in the quarter with the slowdown from operating leverage. Gross margin improved 26.6 percent supported by better pricing in mainstream IC and better product mix, particularly in FPD. Operating margin was 16.7 percent, including a $3,500,000 gain on the sale of a lithography tool. Performance of our joint ventures in China and Taiwan and other income increased due to unrealized gain on foreign exchange. Earnings per diluted share, including about $0.06 a share from the gain on sale of the tool was $0.28 based on 61,500,000 Diluted shares outstanding. Cash and equivalents increased to $283,000,000 With $118,000,000 in debt, net cash is $165,000,000 Operating cash flow in the quarter was $55,000,000 Year to date, we've generated $113,000,000 operating cash flow. Capital expenditures $19,000,000 in the quarter brings our year to date total for CapEx to $87,000,000 nearly net of nearly $6,000,000 in subsidies We're still forecasting CapEx of about $120,000,000 for the year. For next year, we're not yet prepared to provide specific guidance on CapEx, but we do expect it to be lower than this year, focused primarily on IC in the mainstream business. We spent $12,500,000 repurchasing Close to another 1,000,000 shares of our stock during the quarter, bringing the total year to date to 3,000,000 shares for $36,000,000 And cumulatively $53,000,000 spent of the $100,000,000 authorization currently active. We believe there's significant value in P Lab, so we intend to continue buying shares under this authorization. Before I provide Q4 guidance, I remind you that our visibility is always limited as our backlog is typically only 1 to 3 weeks And demand for some of our products is inherently uneven and difficult to predict. Additionally, the ASPs for high end mask And as this segment of the business grows a relatively low number of high end orders, it can have a significant impact on our quarterly revenue and earnings. Government actions to address health concerns or trade policy may also impact on our results. Given those caveats, we expect 4th quarter revenue to be in the range of $171,000,000 to $179,000,000 As we've discussed throughout our commentary, end market demand factors are favorable and we expect them to stay that way at least through the Q4. In addition, we expect further benefit from our recent capacity expansion. Based on those revenue expectations and our current operating model, We estimate earnings per share for the 4th quarter to be in the range of $0.21 to $0.29 per diluted share. In summary, 3rd quarter results were a continuation of the trajectory begun earlier in the year and ahead of the outlook we provided at the beginning of 2021. The catalysts energizing that trajectory are constructing a market environment for photo mass that we anticipate will last for the next several quarters and potentially longer. We have invested to align our operations with these market trends And we'll continue to strategically invest to grow revenues, expand margins, optimize cash flow and improve our return on capital. I will now turn the call over to the operator for your questions. Our first question comes from the line of Tom Diffely with D. A. Davidson. Your line is now open. Okay. Thank you. Good morning. First, I was wondering if you had seen any supply chain issues or COVID related impacts Of your quarter or if it needs embedded in your outlook. Our we continue to operate everywhere around the world, Right. With COVID and we, I think, have been aggressive at managing our supply chain. So We do have, like our customers, some challenges with the tool suppliers, In particular, and their ability to service tools that obviously showed up or was in the quarter And it's in baked into our guidance moving forward. So overall quality of support has deteriorated somewhat. We historically have done a lot of our own self maintenance. So this internal capability that we Have developed for years to drive cost out of our business, I think has paid great benefits during COVID and we That business to continue more or less uninterrupted as it has. Okay. That's great to hear. And then Peter, obviously you guys are it sounds like you're very encouraged by the flat panel display market and all the drivers going forward. But it seems as on a near term basis, you're somewhat capacity limited, ramping revenues with new tools coming online. I was just curious, you talked about not really expanding investments with capital spending next year on the flat panel side, the focus will be on IC. So just kind of curious how you reconcile the fact that that's a fast growing market and you seem to be not investing as heavily into it going forward. Yes. If you look at that market, Tom, our IC business, as we, I think, elaborated, The high end is strong. The mainstream is sold out. The FPD business is not that it's not the case. We are sold out Because of our technology position, but to the best of our ability to discern it, none of our competitors are. So we're operating in a market where our tools are fully loaded, others are not. And this gives us some degree of conservatism as we look at Investments we're willing to make. We continue to talk to customers. I'll just highlight again, The new tools we just installed, I've never seen in my career here or in my career period, New tools installed and ramped so quickly. And it's obvious why that happened. We had Commitments from customers, to make it happen in advance of the tools being installed. So we're aspiring to create the same scenario in that market in a situation where All the competitors have excess capacity. So to the extent we can continue to drive the strategic Approach we have used there, will get more aggressive. So we'll see how it goes. There's a lot of amyloid I said, I mean, it's capacity coming online, not that I missed, but AMOLED display capacity coming online in China this year. Basically, the way we count it anyways, almost doubling From the beginning of the year to the end of the calendar year, there's a lot of the AMOLED mass demand, Samsung's market share is dropping, The Chinese market share is increasing. LG's business is growing, Yet their market share is, I think the way we see anyways, basically relatively consistent, but because the market is so strong, their business is up. So the market looks good as far as downstream is concerned. We're sold out. Way to make money, the conservatism comes because none of our competitors are. Okay, great. That's encouraging. And then finally, when you look at the mainstream market in very tight supply right now, Are you seeing anybody add capacity of photo mask making capacity at the mainstream side? Or is it still not economical to find new tools to What we see our competitors doing as we are doing and that is trying to add point tools Wherever they can, to eat more output Out of the mainstream installed base, and as you look harder, right, and as the market continues to Improve, you find ways to we as well as our competitors are finding ways where it makes sense To again not add lines, but add tools and that's clearly part of our focus In the upcoming year, the other thing I would say is we've made repeated comments that the mainstream markets oversold Yes, in Asia, this trend is now pretty prevalent in Europe too. So Our European business is now oversold. So this sets the stage if it continues to walk prices up in Europe as we have Whether it reaches into the U. S. Or not, time will tell. But the market in the mainstream is They're strengthening everywhere. And one comment that I made that kind of buried in the script. Historically, right, what's driven our business has been no transitions. And historically, Those transitions have always been at the bleeding edge. But now we're seeing a significant and growing number of node transitions. I mean, this has been going on for a while, but it's now it's quite clear. We're seeing new transitions in the mainstream From 110 to 90 or 90 to 65 or 65 to $55,000,000 or $40,000,000 And these are, re spins of products or product revisions That historically would not have happened, but because I think of a few things, Moore's Law slowing down Or in fact, really, the economic consequences of more well stopping at 28 as well as The growth of China and the impacts that are following that, we're seeing a much larger, greater Number of new transitions in the mainstream business and that is new growth that It was really never there before, not there in any kind of material way. Okay. No, I appreciate the color. Thank you. Our next question comes from the line of Gus Richard with Northland. Your line is now open. Yes. Thanks for taking the questions. First of all, on you mentioned that some of the captives are outsourcing as they Fill in more EUV in their internal shops. I was wondering if you could give us a sense of where Captive versus merchant has been over the last few years, where it is today and where you think it might be in a couple of years from now? Yes. So the captive versus merchant is A long story, Frank, a very long story. When we When I look back 35 years when I started in the business, Mark was about 15% merchant. And if you look back 20 years, it has extended And what's happened is that in the IC space anyways, It's pushed back to now where the merchant market is, about 35% and holding. Yes, it looks pretty right now pretty stable. If you look at our business and you look back to 2017, when outsourcing from EUV really started, our captive business our business with captives About doubled over that period of time to the point where it's now approaching almost $100,000,000 So, we've seen that as a growth vector for us And we expect that it's going to continue. So that's kind of a broad brush. And as Moore's Law comes to a halt, when that happens, it's very hard to understand what purpose a captive has. So I think in the very long term, we'll see a shift back to buy That's not within the horizon of a typical Wall Street investor. So is that going to have a big effect in the next year or 2? No. But In the 5 to 10 year horizon, it's hard to see why an IC manufacturer would want to be making its own masks, My opinion anyways. And actually your answer leads me to the next question. Because Moore's Law is slowing, more advanced processor companies are moving to heterogeneous integration with Trailing edge dye co packaged with leading edge dye and you're disaggregating designs. It's early days in this transition. Are you guys seeing any benefit from that at this point Or even what's being done in cell phones. Yes. Chris, would you like so we do have an active Packaging business. And Chris, why don't you take that one? Not packaging, the actual die. Yes. Okay. Well, I'll let Chris answer I'll just let Chris answer the business. Go ahead, Chris. Sure. Yes. Thanks. So yes, there's 2 pieces to that. 1 is the lithography needed to put together those integrated packages, Yes, as you know, we do see some road map emerging on, let's call it, packaging lithography. And it's just the beginning of it, so we are seeing that in the litho get a little more complex. So there's kind of an early nascent business in that. And also we're developing some technology in that area. The question you asked is, are we seeing an impact on more designs Due to the way chips are being integrated, and I think we are seeing that. ASIC has come back pretty strong as a design tool. It really has been hollowed out significantly, at least stopped growing due to FPGAs and other things, due to power, performance, Cost reasons, FPGAs and all kinds of gate arrays are losing market share. This is actually the only device family to shrink In 2021, that's projected. So you are seeing a pivot back to ASICs and smaller form factor ASICs Going to these packages definitely is a trend. Even going down to things that users call chiplets, very, very small surface built, Relatively inexpensive die, where the value is through the integration of those together into a package. We do see that trend. So that kind of leads to resurgence in design activity across the board. And this is one of the things pushing The mainstream market forward. So for heterogeneous, it's at the beginning phases, but definitely that's a positive trend for design tape outs. And we'll see the signs of it now. Thank you, Christy. Just I Gus, just to add one point and I misinterpreted your question, but Chris obviously hit it right on its head. When I was a young boy in this business, ASICs dominated. They absolutely dominated. And over the years, over the last 15 years, they faded away and SGDA for a significant reason why that transpired. But it looks like it's back to the future. We're in the early days of it, but this is really good for overall Photonav Got it. That's very helpful. And then just in terms of Packaging, lithography and mature, what nodes are tight in your mature IC lines? And where is lithography and packaging these days and where is it going over the next couple of years? Yes. Again, Chris, why don't you take that and I'll fill in whatever I think So go ahead, Chris. Okay. Sure. I mean, we use a relatively broad definition of mainstream today, which is Up to but not including 28 nanometer nodes, so quite broad. But if you wanted to break that down into finer categories, You would have, let's say, mature legacy 90 nanometer, 110 nanometer, maybe in greater, and then kind of mid range nose 40, 55. There are steps in the mask technology between those that bring different sorts of value. So mainstream for us, at least the way we talk about it in this context, is quite broad. And then our high end, at least today, generally starts in 28% and goes down. As far as packaging lithography, there's kind of 2 trends that have unfolded in the last, I would say, 3 to 5 years. One was the effort to try to do Packaging lithography on larger substrates. This is so called panel or package on panel. We were starting to see that substrate scaling, Mid range masks, 9, 14 inches masks, which are significantly larger than IT sized masks. We still see some of that, But what we're finding, the stronger trend, particularly on the leaders now is wafer level packaging. So going back to standard size I see mask, and kind of doing it at wafer level scale. That trend is much stronger now, especially at the high end of packaging. And the types of ground rules you see there, in the very, very low end case 40, 50 micron types of Via holes and things like that down to a few microns at mask level for wiring and that sort of thing. So In that context, it would be a relatively mainstream mask technology, but there are some unique characteristics of those packaging masks that Allow some technology injection into them and some differentiation. It has to do with the substrates. The substrates are very warped. The way you have to control the CDs on the masks, the way the masks are integrated into lithography is somewhat unique. So the dimensions are large, but there are some Packaging specific technologies that need to be developed to serve that market and we are working on them. And just roughly how big of the IC business is packaging these days in terms of mass demand Of your IC revenue. Yes, I don't think we would comment, but I would say maybe Peter or John might, but I would say it's relatively We don't break it out, so that's one reason to show you it's a relatively small percent of the total. So yes, but I don't want to give specific numbers. Yes. We don't track it That's a separate segment yet. So I really couldn't add much more than the system to say it's It gives me less than 10% of our IC business presently. One area There might be a lot of things that went into packaging. For on LCD side or display side, mini LED And micro LED trends, that's driving a different set of, for lack of a better word, packaging or integration type masks I actually have a lot of the characteristics of IC packaging masks. So the interconnection circuitry on how those LEDs are Wired up and how the microLEDs will be wired up also drives an interesting set of lithography technologies And consequently, Mass Technologies as well. So we'll start to see at some point some convergence between some of that Technology from a lithography perspective as well, between FPD and IC. Got it. Got it. But mini microLED, much like packaging in general still is immaterial portion of your business? Yes, I would say yes, because it's in development mode, but to go back to and I think Chris made a good transition. To the extent that we have an active rather than the package than the passive backlight, the mass sets utilize Standard, LCD technology with a NASDAQ complexity Approaching a rigid OLED display NAS set. So we go mini LED On microLED and we have an active, backlight, that those are good That's good news. That's good business for a mask maker. They use it as display mask making equipment rather than IC mask making equipment. Got it. Very helpful. Thank you so much. Thank you. We do have a follow-up question coming from the line of Tom Diffely with D. A. Davidson. Your line is now open. Yes, thank you. And a quick question for John. When you look at the target model, what do you need to bridge the gap From the $700,000,000 today to the $750,000,000 in the high end of the target model in terms of capital spending or just additional capacity. Yes. Tom, we've talked about what we're going to use for modeling CapEx going forward and we've assumed that It would be $100,000,000 spend, and that's just a rough estimate without specific Attributions to product lines or tools. So beyond this yield, as we said in the comments, We don't have our specific budgeting done yet. That's actually going to be done in a few weeks. So I think if we just stay with the $100,000,000 estimate for each year, that's as specific as we can get. Okay. And then, if you do that, is there a noticeable difference in depreciation that gets worked into the model? Or is there a pretty even split between spending going in and old tools coming out? Yes. We've got a lot of old tools rolling off as we add the new ones. So our depreciation has stayed right in the range of 90,000,000 I think a few years ago, when we 2018, I think it was when we did our first multiyear model, We were assuming that the depreciation was going to increase to over $100,000,000 but with all the tools rolling off, we're staying right in the 90 And I think probably $100,000,000 would be the highest level for depreciation. Great. And if you're looking at that chart, You can see that we're approaching, right, on a run rate basis, the $700,000,000 column At our margins, both gross and operating, we're approaching the mid level of the chart, right, the $7.25 The reason for that is, As we described on the last call, we're seeing about a 2 margin point bump on both gross and operating margins due to the price increase in the mainstream. So it kind of shifts the scale in a very meaningfully positive way. If you look at that chart that we put up at our Analyst Day, you'll see that we're basically shifted one column to the right On the profile of the income statement versus the revenue required to reach it. Okay. That's great. And then when you look at the mix, how big an impact can mix have in any one quarter on, I guess more on the EPS versus the revenue line. Thanks for that question, Tom. It's kind of a funny question because Mix can be significant. So in FPD this quarter, the mix tended toward higher margin products and Yes, if that continues, then our margin will reflect that benefit. If it goes back to the lower margin products, it has A better effect on revenue, but margin will. So trying to predict mix, especially In this business where we've always said we have 2 to 3 weeks of backlog, is pretty difficult. Obviously, if It makes sense toward the higher margin products. We'll reflect that in the earnings. Right. But I would say a big I would go back and say that I think everybody listening or who's been closely know people under this bucket has been close to the company for a long time, knows that we have just gone through a period where we built and ramped 2 facilities in China, right? And to do that, you can't do that without Draining putting a drain on your income statement. If you look at the current quarter, right, we are approaching EPS of $1 a share, Right, which has been a very long term target for the leadership team, right? We haven't been there As a company, since the turn of 21st century, it's been a long time since anybody here has seen a dollar share. And you can see that it's right in front of us now. So the real dramatic growth for Photronics this year This isn't the top line, although 10% is not bad, right? It's the bottom line. And Yes. So we are at the dollar share run rate right now, right, before we even exited The calendar year, 35% earnings growth year over year, that's dramatic, right? That is really dramatic. And that has always been, Since I've been here for 13 years, the knock on the company is not most of the financial metrics have been strong. What has been Most in the mind of shareholders is earnings and we're delivering on that now. And if you look at our China operations, they're just like 1 of the gang. The profile of the income statement is no different than the profile of the income statement at a consolidated level. So China is signed, sealed and delivered as far as being a Contributing upstanding number of our geographic factory footprint. We're not happy or satisfied, but on one hand, but on the other, China is it's right there now. It's right there with everybody else. Okay. No, it's great to see and I appreciate your time this morning. Thank you. Our next question comes from the line of Orin Hirschman with AIGH Investment Partners. Your line is now open. Hi, good morning. Congratulations on the progress. I just wanted to ask just in terms of the overall industry dynamic, There is a huge lead time just in terms of getting tools. Obviously, there are only really 3 major guys left non captive. There's come a point where we're just because of the lack of the ability to add capacity additions here And the dynamics that you described in the overall industry where photomasks are becoming a gating factor On designs going into production? And if so, how does that affect you? Yes. Well, right now, customers are experiencing lead times in the mainstream market that they've never seen. So it is impacting them and they're willing as a result basically to pay more. So, and you are correct that the photomask industry, like the The semiconductor industry is served by even a fewer number of key suppliers with limited capacity. So the industry is not to the point that you're describing. What it's forced us to do is plan for CapEx With longer cycles, so we're putting capital authorizations in front of our Board 6 months In advance of when we would have done it historically so that we can continue adding Capacity. So, I don't know what our competition is doing, but we've changed our Capital authorization process to look forward farther in time As the lead time of our equipment suppliers has stretched, that's how we're managing it. I can't say how others are. And we're also more demanding on the projections for those investments. So these investments have to meet our Target hurdle rate in order for us to make the decision and to even propose it to the Board. So the last couple of years, that's made a big difference in I assume part of that I think part of that is what you described where the tool is basically sold out before the tool even goes into production, if possible. Well, the way to make sure that happens is the customers to make Commitments to buy capacity before you install it. Historically, we haven't done that, but over the last It's about 4 or 5 years we have. So we actually make it more difficult for ourselves To buy capital because we have to do a lot of work in advance of it. But the impact on the financial company, I think, shows Now clearly for itself. So yes, it's a good time to be adding capacity In our markets, having said that, in the IC parts business at the high end, Qualifying new capacity and new nodes takes time. So you can install a tool And it could easily be 6 or 9 months till it's fully utilized, not because the demand isn't present, but because The customers require extensive qualification to ensure that it doesn't affect their wafer yields. Just one follow-up question. It's nice that I think that you made it to the dollar type of run rate, but The model is very sensitive, as he said, and can you see a path that you get to $1.50 to $0.82 over time, Assuming that the dynamics in the industry stay somewhat similar and how permanent price increase factor into that? I'm sorry, your line is not very good, but I think the question you asked was We're at a we're beyond the dollar run rate right now. Can we sustain it so we actually Deliver it. So I'll let Johnny answer that. Yes. The question is, can you see going out Further, can you see a path to get to $1.50 $1.82 and what would that path be based on besides some capacity additions? Would it also include some minor price increases, etcetera, if the dynamics stay somewhat similar to what we're seeing today out there? Yes. In the target model that we presented in December, I think $1 was the lowest, where we expected To get with that $700,000,000 revenue level. So our expectation is to Hit the dollar within the next year and exceeded and the investments that we continue to make are Obviously, we expect them to be additive accretive to the bottom line. So in our next target model, we should Another hurdle beyond the dollar. If you look back at what we presented at $750,000,000 run rate, we had EPS of $1.25 to 1.35 And clearly, if revenues go up and we have pricing power, we can do better than that. Okay, great. Thank you. Thank you. 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 remarks. Thank you for joining us this morning. We appreciate your time and interest. As we enter the Q4, there's a reason to believe this year we wanted the best ever for Photronics. We are on track to achieve record revenue and our earnings are improving each quarter. The strategy we are following is working. We are optimistic that our best days lie ahead. Look forward to updating you on our 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.