Ladies and gentlemen, thank you for standing by. Welcome to the Photronics First Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, February 16, 2012. I would now like to turn the conference over to Pete Broadbent, Vice President, Investor Relations and Marketing. Please go ahead, Mr. Broadbent.

Thank you, and good morning, everyone. My name is Pete Broadbent, Vice President, Investor Relations and Marketing of Photronics. We'd like to thank you for joining our First Quarter 2012 Conference Call. Before we begin, I'd like to remind all participants about the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995, and thus any statement we make during this call, except for historical events, may be considered forward-looking and may be subject to certain risks and uncertainties that could cause actual events to differ materially from those projected, including uncertainties that may affect the company's operations, market pricing, competition, procurement manufacturing efficiencies and other risks detailed from time to time in the company's SEC reports. These statements will contain words such as believe, anticipate, expect or similar expressions. This call will remain archived on our website until we report our second quarter 2012 results. Joining us on the call today are Constantine "Deno" Macricostas, Chairman and Chief Executive Officer; Sean T. Smith, Senior Vice President and Chief Financial Officer; Dr. Christopher Progler, Vice President, Chief Technology Officer and Strategic Planning; and Dr. Peter Kirlin, Senior Vice President, U.S. and Europe. Deno will first provide a brief review of market conditions and our strategic direction. Sean will then provide a comprehensive review of Photronics' first quarter performance. During Deno's and Sean's remarks, they will be referring to slides posted on our website under the Investor Relations link. Deno?

Thank you, Pete, and good morning, everyone. Please turn to Slide 3 in our slide presentation. As expected, general market condition that logga hardey [ph] shut down this year, impacted Q1 revenues. Sales of $112.2 million were slightly ahead of the low end of our guidance range. Because of our focus on cost control, we delivered non-GAAP earnings per share of $0.09, at the midrange of our guidance. We showed robust strength in the high-end semiconductor photomask demand, as leading edge customers continue to invest in new designs. First quarter IC -- high-end IC sales increased 6% sequentially. Industry softness in mainstream IC business resulted in 16% decline sequentially. Our customers in this segment were generally cautious during the period and many extended the holiday shutdown this year. This quarter, EBITDA revenue were $25.4 million, down 1% sequentially. This sale represents a solid quarter in FPD for us. Our high-end demand was steady at $15.4 million, a 61% on FPD sales. Once again, our intense focus on driving costs down, delivered solid earnings and strong free cash flow. EBITDA for the quarter was $33 million, working capital increased from the fourth quarter by $11 million and net cash grew $13 million to $45 million. These results once again demonstrate the value of our investments at the high-end and our vigilance in cost containment. As a result, our balance sheet continued to get stronger. Looking forward, we are cautious of general market conditions, and we continue to be vigilant on controlling costs and managing our CapEx. We know the opportunities exist to continue the reducing cost across our global operations. We'll be flexible and agile with our investments to capitalize in opportunities to gain market share both in FPD and IC. Despite the current cycle turns and impact on revenues, we believe that we have at least maintained our market share this period. We are in an excellent position with our global operation on technology and our strong balance sheet to grow share in this market. Many of our customers are in excellent position in their respective markets because they are invested in the high-end capability. We're expected to benefit from the investment in future growth. Long term, we believe the trends in devices and leading edge components are in our favor if we continue high-end growth and market share gains. Before I turn the call over to Sean, I would like to thank the entire Photronics global organization for their efforts at the start of this year. Our team continues to build on high-end strategy, cost management and customer service. And now, I will turn the call over to Sean.

Thanks, Deno, and good morning, everyone. I'll provide a brief analysis of our financial results for the first quarter of 2012 and review our balance sheet and cash flows, and then provide an outlook for Q2. Please refer to Slide #4 for our GAAP to non-GAAP net income and EPS reconciliation as we review the first quarter. In December, we announced the streamlining of our operating infrastructure in Singapore, which was a mainstream manufacturing facility. We ceased manufacturing the photomask but retained critical customer support, data prep and retail services for our customers. As we discussed, this action will have a minimal, if any, impact on revenues. We expect to record an after-tax charge of $1.5 million to $1.9 million in 2012 related to this action, the majority of which, or $1.1 million, was recorded in Q1 2012. As a result, for purposes of our discussion, I will primarily be comparing our non-GAAP operating results exclusive of the Singapore restructure. Slides 5, 6 and 7 show our sequential and quarter-over-quarter IC and FPD revenue performance. As Deno mentioned, the first quarter was affected by softness in the mainstream IC markets principally in the U.S. and to a lesser extent, Asia, as well as by typical seasonality. As a result, our net sales in the first quarter amounted to $112.2 million. Revenues for IC and FPD photomasks were $86.8 million and $25.4 million, respectively, for the first quarter. Sequentially, total sales decreased by 8% as a result of market conditions experienced during the quarter. Breaking out sales geographically, 63% of our sales in the Q1 were from Asia, 28% from North America and 9% from Europe. Sequentially, Asian sales increased, which includes the Singapore manufacturing cessation in December. High-end global IC sales were $25 million -- I'm sorry $27.5 million or 32% of total IC sales for the quarter. As Deno mentioned, this represents a sequential increase of 6%. Customers continued to invest in new designs and we benefit in Q1 from a broader, global diversification of high-end business. Advanced FPD sales were $15.4 million or 61% of total FPD sales. As a reminder, high-end IC revenues now consist of revenue derived from SEMI designs at and below 45 nanometers and high-end FPD revenues consist of revenue at above GA as well as AMOLED-based products. Let's continue through the income statement. Gross margin from Q1 was 22.7%, down sequentially from 25.3% as a result of the decreased revenue. SG&A expenses for Q1 were $11.3 million, which was essentially flat from Q4 2011. In R&D expenses, which consist principally of continued development for our global advanced process technologies, were $4.4 million in Q1, up slightly from $4.3 million in Q4. During the quarter, we generated operating income, exclusive of the Singapore charge, of $9.7 million or 8.6% of sales. EBITDA, as defined in our credit agreement for the quarter, was $33 million. This equates to $164 million on a 12 -- trailing 12-month basis. Also on a trailing 12-month basis, this equates to free cash flow of $83 million. We have continued to discuss deleverage in our operating model on incremental revenue with the targeted range of 45% to 50%. Obviously, during this quarter, our revenue decreased as a result, our growth in operating margins were negatively impacted on a sequential basis. The actions we took in Singapore and other planned cost reduction activities are intended to reduce the impact of any potential softening in the market in the future. Other income expense for the first quarter was an expense of 400k and include net interest expense of approximately $1.1 million and favorable exchange gains. During the first quarter, we recorded a tax provision of $3.3 million, which was within our guided range of $2 million to $3.5 million. GAAP net income, which includes onetime and non-cash charges of $4.3 million with an EPS of $0.07 per diluted share. Non-GAAP net income, exclusive of the Singapore charge, was $5.3 million or $0.09 per diluted share, which was within our guided range of $0.07 to $0.11 per share. At the end of the first quarter, we had approximately 1,285 employees, which was a decrease of approximately 4.8% sequentially, primarily related to the Singapore initiative and other selected reductions. This equates to a revenue per employee of $349,000 on an annualized basis. Now turning to the balance sheet, which continuing to -- continues to improve, as Deno talked about. Cash and cash equivalents at the end of Q1 amounted to $202 million and our net cash, which is cash less debt, was $45 million, which represents a sequential increase of $13 million. Our working capital also improved during the quarter, with working capital at the end of the quarter of $220 million, which amounts to sequential increase of $11 million. Accounts payable and accrued liabilities -- accrued current liabilities, at the end of the quarter amounted to $90 million. At the end of Q1, $14 million of CapEx was accrued for, which is down $5 million from the fourth quarter. Please turn to Slide 9 as we review our capitalization including a capital lease that was paid off early in 2011. Total debt at the end of Q1 was $157 million. The principal components of outstanding debt include $22 million of a 5.5% senior unsecured convertible note, which is due October 2014, $115 million 3.25% unsecured note which is due in April of 2016, approximately $18 million related to a capital lease obligation and approximately $2 million related to an obligation with a customer who co-funded a tool purchase. At the end of Q1, we did not have any outstanding borrowings on our $30 million revolving credit line, which matures April of 2015. As we disclosed in our long-term debt footnotes in our 10-Q and 10-K filings, we previously had a capital lease with Micron on the nanoFab building. In May of 2009, the 8% capital lease was canceled and we entered into an operating lease, which reduced, at the time, our quarterly cash payments from $3.8 million to $2 million. The accounting treatment required us to write-off the capital lease asset over the initial lease term, which runs through December 2012. The revised lease agreement or operating lease term was extended to December 31, 2014, which will require us to renew the lease after that date. We are currently reviewing our options on the lease relating to the nanoFab building with the intent to improve our cash flow and reduce our operating expenses going forward. Taking a look at our cash flows. Cash provided by operations for the first quarter of 2012 was approximately $34 million. Depreciation and amortization during the quarter was approximately $23 million. Cash flow used in investing activities during Q1 amounted to approximately $20 million and includes $18 million for cash payments for capital expenditures. Net cash used in financing activities during Q1 amounted to $2 million. Please turn to Slide 10 as we take a look ahead. Our initial look or our updated look at CapEx needs on a cash basis for 2012 is in the range of $60 million to $80 million, however, I'd like to remind you, we do have the flexibility to accelerate or decelerate our spend depending upon market conditions. We do expect to continue to generate free cash flow once again in 2012. Our 2012 investments will principally be geared towards high-end leading edge products for IC and FPD applications. The significant high-end revenue increases that we've experienced and market share gains in 2011 have certainly validated our high-end strategy. Our visibility, as always, continues to be limited as our backlog is 1 to 2 weeks. At this time, we do expect to experience modest sequential growth as we believe that Q1 was our trough quarter. So taking this all into consideration, we are projecting revenue for Q2 of 2012 to be in the range of $113 million to $118 million. During 2012, our tax rate will be impacted by the flow of income from jurisdictions for which we may have tax credits and call upon our limited ability to recognize tax benefits in areas which we are taxable. Accordingly, we are estimating income taxes for 2012 to be in the range of $14 million to $16 million and for Q2, this will equate to a range of $3 million to $4 million. As a result, based upon our current operating model, we estimate earnings per share for the second quarter of 2012, which is exclusive of the impact of any restructure costs, to be in the range of $0.09 to $0.13 per diluted share. In summary, I'll leave you with a few key thoughts. First, we do expect as I said earlier, to generate free cash flow in 2012 regardless of the market environment. Second, we are very excited about our potential to capitalize on additional high-end growth in both FPD and IC, and see opportunities to capture further share in 2012. We'll continue to execute on our high-end strategy, while serving our mainstream customers. We are particularly encouraged by the fact that customers have continued to invest in new high-end designs during this downturn, and finally, we expect to build on the momentum that we established in fiscal 2011. As I said, at this point in time, we expect Q1 to be our trough quarter, and that we will report quarterly sequential improvement thereafter. Although our visibility is limited, we plan to match our operating infrastructure to the market environment. Now we'd like to turn the call over to the operator for Q&A.

[Operator Instructions] Our first question comes from the line of Edwin Mok of Needham & Company. Y. Edwin Mok: So first question on the guidance, just curious is that -- what kind of assumption is taken to the guidance in assuming how weakness on the mainstream to continue and also does high-end conjuex [ph] increase? And also a question regarding exposure to the memory side versus logic side, do you see high exposure on that end being weaker?

Edwin, this is Sean. I'll answer the question on the guidance and turn it over to Chris and Peter for further color on the industry segments. But the guidance is predicated upon where we think we will be in Q2. Obviously, we're going to see sequential improvements. We were excited to see that we saw sequential improvement in the high-end in Q1. And as you noted, that mainstream was down, we do expect that to rebound to the extent it rebounds and coupled with our FPD, will indicate where we'll end up. So that's why, probably what we know today, we're going to be in the $113 million to $118 million range. Obviously, try to hit the high end of that range, but that's where we believe based upon what we see in front of us today we'll be at. And Chris and Peter, want to jump on in the memory side?

Regarding the high-end, I think the continued good news there is that our customer base are diversified on a global scale, so the growth -- I think it's safe to say the growth place core [ph] was not driven by our memory customer base. Without a doubt, memories will rebound and when it does, I think that's more fuel on the fire that's the growth of our high-end business. Regarding the mainstream sector, no doubt that was weak last quarter. The behavior we see of our mainstream customers is they really vote with their wallet. When their business is good, our business with them was good. When their business is not so good, they control expenses. So I guess, the bad news is, our business is down in the mainstream segment. The good news is, what goes down will come back up when their business improves. Given the outlook that most of our mainstream customers have for Q1, which is looking pretty traditional, which is sequentially down, our guidance there is muted or our thoughts there about the business are muted. However, the tone in our mainstream customer base is generally positive. So as that business builds, as our customers' business builds throughout the year, we're very sure we have not lost any market share there so we would expect our business to rebound in step with them. Y. Edwin Mok: It's a helpful color that. Just comment on high-end customizing on the prepared remarks as well as your comments, Peter, can you guys talk about how broader customer base on the high-end side? Any way you can quantify it may be either by number of customer or number of tentative customer in the high-end?

I can just make some general comments on the segments. As we have mentioned previously, our high-end business started from a base linked to DRAM and that technology has since expanded to NAND, Flash, the high-end driver, foundry larger and also IDN logic. I think you know who the large players are in each of those segments and we're engaged with most of them. All the segments are doing well. As time goes, some will be better than others. So we have a broad global diversified high-end product line and customer base now. In terms of specifics, who's strong and who's weak, I think we don't generally comment on that but you can follow the larger companies that are in the space and probably draw your own conclusions on which segments are particularly strong and which were weaker last time. But the good news is we set out from a base of memory. We've expanded into different applications. We're playing in all the major high-end segments now and its global exposure. Y. Edwin Mok: One question for you Sean. With the [indiscernible] just curious, how do you think about OpEx reduction or margin benefit, if there's shift back in the current quarters, if there's any, when do we expect those to kick in?

Edwin, during the quarter, I think, last quarter we stated that our operating income breakeven revenue required to be there was probably $96 million to $98 million and we believe with the Singapore initiative and other selected reductions in cost control and cost avoidance programs in place, we estimate that Q1, the breakeven point was reduced to about $95 million to $96 million. So we're going to continue to look at that. We're not going to jeopardize our high-end penetration but we're going to continue to try to be as lean and as efficient as we are, as we can be. Y. Edwin Mok: Okay. Maybe more specifically, do you expect your OpEx to actually come down during the quarter?

When you're referring to OpEx, that's SG&A and R&D? Y. Edwin Mok: Yes.

We would expect it to remain approximately flat to down slightly. Now R&D could increase depending upon initiatives with respect to qualification, so that's a good variable number that R&D is up, that's a good sign for the future for us. Y. Edwin Mok: One last question, if I could, just curious any thoughts about paying off some of your debt, especially like the 5.5% converter that you are launching?

Yes, the 5.5% convert -- the $22 million and the strike price of $5.08 and I believe, I don't know what it's trading at today or recently but it was trading at a premium that would require an amount of cash that we did not feel we should part at this point in time. So we'll continue to evaluate our options.

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

Sean, maybe a question for you first in terms of the CapEx. I know you've mentioned today and in the past about being flexible in, I guess, accelerating or decelerating. How quickly are the turnaround times in terms of getting the equipment in place and getting those -- getting new capacity up and running for customers?

We have ongoing plans, Patrick, even when we discuss things were slowing down in Q4 with our vendors to try to secure potential slots for equipment and though we kept the guidance the same at $60 million, $80 million, I think it would be fair to say that we're trending or anticipating to be at the high-end of that range. And to the extent we see further opportunities to expand selective footprint, we'll will increase that and we'll talk about that at the end of our Q2 call. We do not feel almost any opportunity as a result of our capacity.

Okay, great. So basically, you are implying that any -- you'll get the capacity in place, if need be, in time to meet any customer demand?

Yes.

Going to the FPD side for a second, AMOLED is a growth opportunity for you guys but obviously, the general FPD market remains somewhat soft. How much do you see AMOLEDs growing in calendar '12 that can help offset some of the broader weakness in the space?

For competitive reasons, we can't give specific guidance but what we can say, Patrick, is that obviously in a weak overall FPD market, Q1 revenue was sequentially flat, as Deno alluded to, so while there's a larger scale and larger displays are a little bit softer, we do see some encouraging business on the AMOLED side. To the extent how much of that goes up, we believe we're still in a very good position from a competitive standpoint. Perhaps, Chris, do you have any further color?

No, I'll just say, what we've talked about in AMOLED the complexity of the masks and the high-end opportunity there is coming to fruition. The companies we work with are investing in capacity. To the extent how that growth offsets other parts of the FPD segment, I don't think we can comment on that now but the AMOLED does look like a growth opportunity for us on the display side.

Our next question comes from Chris Blansett of JPMorgan.

This is Bill Peterson calling in for Chris. I wonder if you can walk us through, I guess, when you think about the mainstream market with low utilizations, how do you view pricing or say predatory pricing with the competitor threats out there and I guess, related to that is how long are contracts in place for such a market?

Maybe I'll start and then I'll turn it over to Peter. The mainstream market has always been very competitive. Price competition has always been there and despite the decline quarter-over-quarter in the mainstream business, we have a very lean and efficient operating infrastructure and that generates a lot of cash. So we're less susceptible to, because of our set up, less susceptible to -- as you say price degradation but we're still profitable in that segment. Peter, do you have any other comments?

I think the tone in the mainstream segment is unit volume down, customers are optimistic about their business prospects so right now the deceleration revenue is more or less mostly volume driven. The pricing environment has not materially changed. Regarding contracts, for the large customers, they tend to be 12 months to 2 years. So there may be some tactical actions right now that I would describe as isolated. We, as Sean said, have a very lean infrastructure. We're still nicely profitable and we're generating a lot of cash in the mainstream segment. So what I would suggest is you watch this segment of the business over the next 2 or 3 quarters and I think, you'll see a nice change but time will tell.

So that said, you expect prices to actually increase over time, I'm sorry, not this quarter but over, throughout the year?

I wouldn't say expect them to increase, as Sean said. We usually see a small -- a smaller version in prices but what I did see is I haven't seen any remarkable change in the market. It's just business as usual. It's just the unit volume isn't there presently.

I think maybe, Peter, another way to say it as well as the unit volume wasn't there, but we're fairly confident that despite our decrease, we're sure our competitors were suffering even more during that quarter.

Yes, I think that's a good way to describe it.

Okay, fair enough. And I guess, just related -- it's a small amount, but related to the charges for Singapore, would you expect that to be, I guess, this current quarter primarily or is it spread out through the rest of the year?

I think it will primarily be mostly in Q2 and based upon the range that we gave, it's not going to be significant.

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

Sean, I guess, along the lines of Patrick's question earlier and in line with the Singapore closure, what is your current installed capacity? I know obviously it depends on mix but are you still up in the $130 million range?

Well, Q2, excuse me, Q3 of last year, we did $136 million and we said Q3, Q4, depending upon the mix we could have done upwards to $150 million and since the Singapore closure, we said because we have installed capacity and we don't expect to lose any revenue, we're still certainly around that number, if not a little bit higher, depending upon the mix and the market environment. So to the extent that we see a snapback in any facet of the business, we have the installed capacity to handle that.

Okay, great. I was just harking back to year ago when you initially thought the April quarter was going to be below $120 million and it came out at $133 million, just wondered if you could respond quickly.

We were talking about that or something like that but we have to be pragmatic about what we see today but we do, as Deno said, Peter said and Chris said, we are excited about our opportunities and we can react very quickly if there's a snapback.

A lot of the other scenario equipment companies with regards to the memory sector said that, they've seen a definite change in the tone of the customer in the sense that all the activity started to really ramp up later in December and a lot of times it wasn't quick enough to impact the first quarter but they thought that things are setting up pretty well for the second quarter. I was kind of curious if you're seeing similar trends where if not orders then just the overall activity level has picked up with some of the memory-related customers?

This is Chris. I don't think we've seen dramatic changes in the memory companies we're working with. For sure, capacity is coming on line, companies are working on new nodes and ramping fast, but I would say, we have not seen a market change in that over the short term. I think, if we've seen a change on the capacity and the node transitions recently last quarter to it's more on the foundry side, there, there seems to be a little more aggressive nodes, which is now 28 nanometers seems to be yielding quite well finally at some of the foundries. So I would say there over the short-term, we've seen a little more activity but that's not to say the memory companies are stagnant. We just have not seen on the mask side what you're talking about. Now equipment and masks can be multiple quarters of difference in how they cycle so that does not necessarily mean much at this point.

Right now you can see some comments coming from like Form Factor that have 100- or 75-day lead times versus yours, which are virtually overnight in some cases.

That's right. We still have time for capital equivalent, of course, has to be taken into consideration so it's a good forward-looking metric for us.

And finally, Japan I know a year ago with the disruptions there, you had a little bit of share, just curious how the market conditions have changed, the competitive fronts with your Japanese competitors?

The Japanese market is definitely shrinking in a big way. They don't make any more memory chips there and our competition lost big market share there because the business is not there. I do believe our competition is shrinking and definitely, I don't see getting any better. It has been a lot of problems there and some I believe Japanese competitors are not do very well and the Japanese market shrinking overall.

Our next question comes from the line of Krish Shankar Bank of America.

This is Thomas Yeh calling in for Krish Shankar. So leading edge SEMI held up pretty well during the quarter. Can you give us some perspective on your customers' utilization rates with the leading edge. How they compare to utilization on the mainstream side and how they're trending through 2012?

Tom, this is Sean, we don't comment specifically on utilization rates of our customers and segments but as Peter alluded to, certainly on the mainstream side, it would be fair to say that utilization was down sequentially. And on the high-end side, in pockets as Chris alluded to, we see some increases in revenue, which then may equate to increase utilization or installed capacity. So we do expect broadly in 2012 as we said earlier because most of our growth is directed towards high-end business, we do expect that to improve sequentially each quarter. How much and how quickly that does improve, remains to be seen but we do expect to see overall improvement.

Thanks, that's helpful. And you had mentioned previously on CapEx that, that would tip towards IC investments this year, following heavy investments in FPD last year. Can you provide some additional granularity on how do you get to that high-end of the range that you had mentioned for this year?

I don't recall specifically if we broke down in the past the capital spend between IC and FPD but we are -- we will make selective high-end capacity adds to both IC and FPD in 2012. And I think, I did recall that in our guidance from Q1 that plus or minus 25% of our business is FPD. So maybe general rule of thumb, it may be 25%, plus or minus 5% going to FPD but it could fluctuate. We will react and spend in accordance with the market opportunity.

[Operator Instructions] Our next question comes from the line of Stephen Chin of UBS.

This is Mahavir. Just wondering if you could share some thoughts on, it looks like the memory customers could come back in the second half given the higher spot prices for DRAM expected in the next coming weeks or months and so DRAM utilization rates could go up and so wondering, if you could see a kick in from memory and also maybe a boost from AMOLED investments in the second half?

Mahavir, Peter will answer you with Chris as well.

I think, if I was to look into the future, I think your assessment of the market is reasonably accurate. And also, I think, when Sean speaks to CapEx, as we get into the middle of the year, we'll really be placing bets that we'll have capacity coming online early next year so we are very close to our memory customers. And we are looking for a ramp to occur this year and the timing of that ramp should have a significant impact on our revenues, a and b, it could impact our CapEx plans so I think, your thesis there is a good one.

This is Chris. Regarding the AMOLED, again, it's the timing of investments since the customers are putting in capacity for those technologies. When that translates into photomask demand, somewhat out of cycle with that, so the capital equipment will first and that is happening as we speak. So again, there's an upside potential for later in the year as that capacity gets online. There would be more demand for design than capacity.

Great. And just Deno and Sean, I'm wondering if you could share what run rate or what the overall market size run rate are you managing the business, did you think 2012 could be flat in terms of just over all market size compared to 2011?

I believe the market will be flat. Last year, we couldn't see any growth in the market, but I do see growth in Photronics to gain market share.

Got it. So basically, a flat market.

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

Thank you, everyone, for participating in the conference and have a good day. Thank you.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.