Peter C. Broadbent - Vice President of Investor Relations and Marketing Constantine S. Macricostas - Chairman, Chief Executive Officer and President Sean T. Smith - Chief Financial Officer, Principal Accounting Officer and Senior Vice President Christopher J. Progler - Chief Technology Officer and Vice President Peter S. Kirlin - Senior Vice President of U S & Europe

Edwin Mok - Needham & Company, LLC, Research Division Stephen Chin - UBS Investment Bank, Research Division Thomas Yeh - BofA Merrill Lynch, Research Division Thomas Diffely - D.A. Davidson & Co., Research Division

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Photronics Second Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, May 15, 2013. I would now like to turn the conference over to Pete Broadbent, Vice President, Investor Relations and Marketing. Please go ahead, Mr. Broadbent. Peter C. 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 second quarter 2013 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 be archived on our website until we report our third quarter 2013 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' second 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? Constantine S. Macricostas: Thank you, Pete, and good morning, everyone. Please turn to Slide 3 in our slide presentation. Revenues for the quarter were $106.7 million, within our guidance range. IC sales were $82.2 million, up 10% sequentially. Growth in IC was driven by high-end sales of $23.4 million, up 31% sequentially. At the same time, our mainstream sales also performed well, up 4% sequentially. We're seeing a new design activity across our customer base, both high end and mainstream. As Sean will explain later, our strong growth at the high end could have been stronger except for softness from a key Asian foundry customer. It was largely a timing issue. As we announced previously, we're accelerating the installation of 2 EBMs 8000, one for Asia and one for our nanofab in Boise. Our key customers in both memory and logic are moving to new nodes, and these tools give us market-leading technology to serve them. Both installations are on schedule, and we expect to benefit from this capability in the coming quarters into 2014. Turning to the FPD side, sales for the photomasks were $25.4 (sic) [24.5] million during the quarter, down slightly from Q1. Despite some softness at the high end, we remain confident in the demand trends in this market. Strong cost control during the quarter led to improved margins and solid earnings. Gross margins improved 210 basis points sequentially to 23.2%. Operating margins improved 240 basis points sequentially to 7.6%. We achieved GAAP EPS of $0.08 per share, which was within guidance of $0.07 to $0.10 per share. Our non-GAAP EBITDA was $28 million. We ended the quarter with net cash of $31 million. Looking forward, we're excited about our opportunities. We're on a path to solid growth based on the strength of our technology, entering new design activity across the business. And we plan to capitalize on this growth and the strong levels in our operating model to generate increased profitability. As I have said before, this industry is -- will become stronger. That is true with our customers, and it is true with the merchant mask makers. At present, we believe we are the only merchant making significant investment in high end, and we expect that our new tools would give us a technology lead at the next node in both memory and logic. These next 3 nodes, 28-, 22- and 40-nanometer, are significant for the industry. This is a first for the company to be on the leading edge of node transition. We plan to capitalize on this opportunity and play a critical role for our customers. Over the next several quarters, we see a number of significant opportunities with our customers to grow our high-end business and gain market share. During the next couple of years, we believe Photronics will be well positioned to become the leading merchant photomask supplier in the market. There are a number of factors that give us this confidence. Our key customers are growing and continue to invest in node migration. We have opportunities with some of the largest foundries to gain market share. We should continue to benefit from our strong partnership with Micron. We have the most efficient operating model versus the competition. We have a strong global footprint, and we believe we have the best technologic capabilities of any merchant and we're investing with the high-end to capitalize on these opportunities. Before I turn the call over to Sean, I would like to thank the entire Photronics global organization for their efforts so far this year. We have these opportunities ahead of us because of their efforts in advancing our technology through -- by outstanding customer service and striving to reduce costs whenever possible. And now, I will turn the call over to Sean. Sean T. Smith: Thanks, Deno, and good morning, everyone. I'll provide a brief analysis of our financial results for the second quarter of fiscal year 2013, review our balance sheet and cash flows and then provide our outlook. Slides 5, 6 and 7 show our sequential IC and FPD revenue performance. As Deno mentioned, second quarter revenues totaled $106.7 million, which was within our guided range. Revenues for the quarter were muted by reduced high-end orders from one of our Asian foundry customers, due in part to a node migration for which we had not yet completed qualification. We had expected continued high-end orders for the 32-nanometer node, but actual orders did not match our projections. We do expect to begin to regain share after we are qualified for this technology node during Q3. In addition, we received one of our E-Beam 8000 a few weeks ago, and we believe we will able to extend our market share once this tool is qualified. The E-Beam 8000 is capable of producing photomasks down to 14 nanometers, and we will be the only merchant supplier in Asia, outside of Japan, to have this advanced litho tool. Revenues for IC and FPD photomasks were $82.2 million and $24.5 million, respectively, for the second quarter. Breaking out sales geographically: 56% of total sales were from Asia, 35% from North America and 9% from Europe. Even though we saw a decrease in high-end orders from the foundry customer we previously discussed, high-end IC sales increased sequentially, as Deno mentioned, to 31% to $23.4 million or 28% of our total IC sales for the quarter. Advanced FPD sales were $16.5 million, a sequential decrease of approximately 900k, primarily as a result to seasonality. Advanced FPD sales represented 67% of total FPD sales for the quarter. As a reminder, high-end IC revenues consist of revenue derived from semi-designed at and below 45 nanometers. High-end FPD revenues consist of revenue at and above G8, as well as AMOLED-based products. Gross margins for the second quarter was 23.2%, up sequentially by 210 basis points as a result of the increased sales. The incremental margin contribution was approximately 54% on the increased sales. Selling, general and administrative expenses for the second quarter were $12.2 million, up sequentially by $1.1 million. The increase was primarily attributable to increased health care costs and, to a lesser extent, sales-related expenses. As compared to Q2 2012, SG&A was essentially flat. R&D expenses, which consist principally of continued development for our global advanced process technologies and qualifications at advanced nodes, were $4.6 million, down approximately $300,000 sequentially. During the quarter, we generated operating income of $8.1 million or 7.6% of sales. The incremental margin contribution was approximately 42% on the increased sales. Noncash stock compensation for the quarter was approximately 900k. And EBITDA, as defined in our credit agreement for the quarter, was $28 million or $120 million on a trailing 12-month basis. Other income expense for the second quarter was expense of 900k, up 300k sequentially. During the second quarter, we recorded a tax provision of $1.7 million. And as Deno mentioned, GAAP net income was $4.9 million or $0.08 per diluted share. At the end of the second quarter, we had 1,290 full-time employees, this equates to revenue per employee of $331,000 on an annualized basis. Now turning to the balance sheet. Cash and cash equivalents at quarter end amounted to $211 million. And our net cash, which is cash less debt, was $31 million, down approximately $12 million sequentially. Our working capital at the end of the quarter was $207 million, down from $226 million from Q1, due primarily to increases in tool-related obligations. Accounts receivable increased to $83 million at quarter end, a sequential increase of $8 million, due primarily to increased revenue, principally high-end IC products. Accounts payable and accrued current liabilities at quarter end amounted to $104 million, and at the end of the quarter, we had $35 million of accrued CapEx. Please turn to Slide 9 as we review our capitalization. Total debt at quarter end was $180 million. The principal components of outstanding debt include: $22 million of the 5.5% senior convertible note, which is due in October of 2014; $115 million, 3.25% unsecured notes due April 2016; approximately $13 million for capital lease obligation; $23 million, 2.5% 5-year term loan related to the nanofab building; and approximately $7 million related to an expected 2% capital lease for one of the advanced e-beam tools. At the end of the quarter, we do not have any outstanding borrowings on our $30 million revolving credit line, which matures in April 2015. Taking a look at our cash flows. Cash provided by operations for the second quarter was approximately $17 million and $36 million year-to-date. Depreciation and amortization for the quarter was $18.3 million. Cash flow used in investing activities during the quarter amounted to $18 million and $35 million year-to-date. Year-to-date cash used in investing activities includes $32 million of cash CapEx. Net cash used by financing activities during the quarter amounted to $1 million and $7 million year-to-date. This includes $4 million related to the repurchase of shares of our majority-owned Taiwan subsidiary, PSMC. During the quarter, we announced our intent to acquire the remaining shares of PSMC through a tender offer. The transaction is expected to cost Photronics $25 million to $30 million, and the tender offer is expected to conclude on June 18, 2013. Please turn to Slide 10 as we take a look ahead. We expect our non-financed cash CapEx in 2013 to be in the range of $70 million and $90 million. And as Deno mentioned, we accelerated the installment of the 2 advanced e-beam litho systems for North America and Asia, one is being installed now and the other is scheduled for delivery next month. We accelerated the delivery of these tools as a result of projected high-end demand later this year in Q4 and into 2014. Payment terms for the non-financed portion of the tools are embedded in the $70 million to $90 million for 2013. As we discussed in the Q1 2013 Conference Call, we entered into a 5-year $32 million capital lease agreement for one of the advanced litho tools. We expect the majority of these - the majority of the lease to be recorded on the balance sheet in the third quarter of 2013 upon the acceptance of the tool. The lease is expected to carry a 2% interest rate. Currently, we plan to use our cash on hand for strategic initiatives, as well as reviewing opportunities in the future to reduce some of our higher-yielding outstanding debt. We do, however, have the flexibility to accelerate or decelerate our spend based upon market conditions. We expect to continue to generate free cash flow once again in 2013, and our investments are principally geared towards high-end, leading-edge products for IC and FPD applications. Our visibility, as always, continues to be limited, and our -- as our backlog is typically 1 to 2 weeks. We are projecting revenue for the third quarter of 2013 to be in the range of $107 million to $111 million. During 2013, our tax rate will be affected by the flow of income from jurisdictions, for which we have credits, and upon our limited ability to recognize tax benefits in areas which we are taxable. For the third quarter fiscal 2013, we expect tax expense to range -- be in the range of $2 million to $3 million. For fiscal 2013, we expect taxes will range from $10 million to $12 million. As a result, based upon our current operating model, we estimate EPS for the third quarter to be in the range of $0.08 to $0.11 per diluted share. Please turn to Slide 11. I'll leave you with a few key thoughts. We do expect to report top to bottom line improvement in Q3 and continue to anticipate further sequential improvement for the rest of the year. Looking into Q4 and into 2014, we expect accelerated high-end IC growth as we see continued opportunities in our customers' businesses and node-migration plans and believe that we are well positioned to become the leading global merchant photomask supplier as a result of our advanced technology, strategically deployed leading-edge capacity and strong financial position. We expect to benefit from increased high-end capacity in Boise and in Asia that matches it to our customer node-migration plans with our foundry customer, as well as capitalizing our Boise JV partner growth prospects in Asia. Now I'd like to turn the call over to the operator for questions and answers.

[Operator Instructions] Our first question comes from line of Edwin Mok of Needham & Company. Edwin Mok - Needham & Company, LLC, Research Division: So first question on the guidance, got the sequential increase guidance on your topline. Just curious if you can kind of break down the -- between semi and flat-panel display and also between high-end and mainstream, just to kind of see -- wanted to see the moving parts behind the guidance? Sean T. Smith: Edwin, we typically don't provide guidance between IC and FPD, but we do project to have increasing high-end IC business for this quarter. And typically, and looking back over the last few years, seasonality does come into play between FPD and -- FPD on Q1 and Q3 are typically up, depending upon the cycle, and Q2 and Q4 typically drop. So -- but generally, we expect to see high-end growth in both applications, IC and FPD. Edwin Mok - Needham & Company, LLC, Research Division: Okay, that's helpful. So maybe just focus on IC first, right? The foundry customer that you said -- basically there was some business loss due to this foundry customer on node migration. What gives you confidence that you can win that business back? And that given that the foundry customer has either used another supplier, what is it that you think that will allow you to win that business back? Peter C. Broadbent: Okay. So we found out last fall that, that particular customer was going to accelerate a node transition by approximately 2 quarters. So we went to our e-beam supplier. And at that time, negotiated a pull-in of one of the 8000s by 2 months. So that's the tool that Sean mentioned has already -- it's already on the ground. It's being installed now. The installation of that tool takes approximately 3 months. You've heard us say in the past that qualification is normally a 9-month process. But based on our relationship with this customer, we've already completed the qualification of the semi-critical and noncritical layers. So we collectively are waiting for that 8000 to come up. When it does, we will go through an accelerated qualification. So we expect that by the fourth quarter, which is, I wouldn't say, a world record, but it's as fast as humanly possible, to start seeing business from them on this particular node. And the reason all this is happening is we're well aligned, we're their preferred partner. And as soon as we're able to execute, the business is coming back. Christopher J. Progler: Yes. This is Chris. The only thing I would add is we believe the majority of the work was done by the -- their captive in this particular case as opposed to market share losses. So we think we're going to recover that quite quickly. And the base technology is ready to go. So we really are waiting on the equipment to be installed and the fast track to finish the call [ph]. Edwin Mok - Needham & Company, LLC, Research Division: Okay, that's fair. If I just kind of quantify that -- the impact of that customer, should I think of it as kind of take the midpoint of last quarter guidance and then look at the delta, which would imply maybe a little bit more than the dollars difference that you are expecting that got pushed out into effectively fourth quarter, am I thinking of it the right way? Sean T. Smith: I don't think we stated we expect anything to get pushed out. It was -- as Peter mentioned, it was a node migration plan that was accelerated. We weren't completely qualified for that period of time, so the revenue was -- the business was kept in-house. So to the extent we came in at $106.7 million, and we guided at $106 million to $110 million, I think it would be fair to say we'd be higher than what we came in if we were up and ready to go. Edwin Mok - Needham & Company, LLC, Research Division: Okay, that's fair. And then last question and I'll then go away. So flat panel display was down sequentially, both in the high -- actually mainly on the high-end side. Anything I can read on that? And how do you kind of think about that business as you go into the fiscal second half and beyond? Sean T. Smith: It was down slightly from Q1. As I mentioned a little while ago, Q1 and Q3 are typically up sequentially. We -- still we feel pretty solid quarter for flat panel business. We still have a very good toehold on the AMOLED-based products, and we have 2 leading-edge customers in Korea that we'll continue to invest. And we're not just -- just as a reminder, we're not solely tied to flat panel televisions.

Our next question comes from Stephen Chin of UBS. Stephen Chin - UBS Investment Bank, Research Division: A question on the visibility of the rest of 2013. So what are some of the key developments or variables in both semi and display that you're watching for that could make this a 2011- or a 2012-like year? Sean T. Smith: We are very optimistic as we get into Q4 about our growth prospects as a result of the high-end capacity, the leading-edge IC products coming online and with new opportunities for node migration and increased share. And we expect that to continue into 2014. Christopher J. Progler: Yes, I think on the foundry side, the 28-nanometer node looks quite strong, hitting mass production in multiple foundries, so that's the thing we're watching and we're excited about. We are seeing push in on the logic side, maybe bypassing 20-nanometer node or that kind of being a minimal node and going right to a node in the high teens, like 14-, 16-nanometer. Memory side, 2X node mobile DRAM seems to be picking up steam. We had a very strong quarter for memory. 3D NAND looks to be very interesting new technology that's coming in. And on the display side, I think the new technology we continue to watch is the 4K or ultra high-def adoption. It's taking time, but there's a lot of work going on in that area. So I think also a very good potential driver that may not be too far out. Stephen Chin - UBS Investment Bank, Research Division: And just one quick follow-up. Could you give us a timeline for when you would see some of the benefits from the Elpida merger? And how should we think about that opportunity set? Peter S. Kirlin: Yes, I think we're expecting to start to see the benefits of that starting to materialize in the first -- in the fourth quarter, but really starting to gain traction in Q1. So as Sean said, the fourth quarter for us is really -- we really start to see, more or less, a full quarter's benefit of the 8000, the first one that's installed. And by the time we're in Q1, we should see the full effect of both of those tools plus the impact of the acquisition closing.

Our next question comes from Krish Sankar of Bank of America Merrill Lynch. Thomas Yeh - BofA Merrill Lynch, Research Division: This is Thomas Yeh calling in for Krish Sankar. Just as a clarification on the softness from the qualification issue. You mentioned that you're hoping to recapture share by 4Q. So is it safe to say that 3Q guidance continues to bake in a lack of that business? Sean T. Smith: Tom, this is Sean. We do expect to regain some of that share in Q3. But really, the full effect, as Peter alluded to, would be in Q4. Thomas Yeh - BofA Merrill Lynch, Research Division: Got you, that's helpful. And then as a follow-up, at your Analyst Day, you highlighted longer-term goals to achieve operating margins of 17.5% off of about $132 million, $135 million quarterly revenue. I wanted to get some granularity on that target, and what additional levers on the cost side you might have to get about 50% revenue drop through -- for when the top line starts to ramp? Sean T. Smith: So the -- on the gross margin side, this quarter was 54%. And we do expect as we get incremental revenue coming in that, that would still be the case. So the number that we quoted at the Analyst Day we would still stick to. And the real driver to that margin leverage will be increased high-end business on high-end IC and high-end FPD. While our mainstream business continues to be very stable and, in fact, generating a lot of cash for us.

[Operator Instructions] Our next question comes from line of Tom Diffely of D.A. Davidson. Thomas Diffely - D.A. Davidson & Co., Research Division: So if you look at the high-end IC business and, obviously, it was up nicely in the quarter, 31%. But when you look at it kind of year-over-year and first half over first half year-over-year, it's down quite a bit still. So I'm just curious, outside of the one customer issue that you talked about, what else is different about this year versus last year? Sean T. Smith: Well, I think that we think that the business obviously in Q3 and -- Q4, Q1 last year did take a dip, high-end business went down. We're starting to see it pick back up. So it's just as the node migrations occur, we're growing with our business. And as evidence, you can see the significant growth that we had in the U.S. this quarter that's primarily related to our partnership in Boise and their expansion into Taiwan. So we do expect to be hitting on all cylinders, as we talked about, it's going to ramp up in Q3, but certainly into Q4. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. So would you expect high-end IC growth year-over-year? Sean T. Smith: It's -- I don't think we're going to guide specifically to growth, high-end growth. But we do expect to see sequential improvement. We started out on a pretty low base, unfortunately, in Q4, Q1. That will be the goal. We're going to end on an uptick without a doubt, and we expect it to continue to ramp into 2014. Christopher J. Progler: And part of it is also is due to the -- our memory -- one of our large memory customers is kind of reworking their manufacturing strategy some, so that caused somewhat of a pause or at least a flattening on some in the memory business. But that's in -- kind of worked through, and that's actually going to expand quite significantly from here through to acquisitions and things. I think that's part of the effect you're seeing as well. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. And on the memory side, is that both on the DRAM and NAND side? And then with the kind of U.S. and overseas customers as well? Christopher J. Progler: Yes, that is correct. There's a lot of motion around fabs, repurposing FABs and that sort of thing and relooking at manufacturing infrastructure. So I think that's part of the kind of year-over-year effect you're noting. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. And then, Sean, when you gave the full year tax guidance of $10 million to $12 million, that's obviously above the current run rate that we have. Is that -- is the increase in the latter half of the year, is that driven mainly by just revenue dollar amounts, or is it a mix issue that changes in the fourth quarter? Sean T. Smith: It's based upon -- we're a taxpayer in Korea and in Taiwan. We're not a taxpayer in the U.S. So it is changing of the projection of where we expect the revenue to come in or the impact of it. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. So it's really a ramping of the overseas revenue over the next couple of quarters? Sean T. Smith: And I do believe we did guide initially to have a higher tax effect at the beginning of the year. And in fact, this quarter, our tax -- while we were in the guiding for EPS, our actual tax expense was down because of the strength of the U.S. business. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. All right. And then when you look at the new tool going into e-beam or EB 8000, what does that do from a capacity point of view for the high-end IC world? So I want to quantify how much capacity that gives you. Sean T. Smith: It certainly gives us additional capacity both in Asia and in the U.S. We typically say -- we have stated in the past, we tried to say that could drive revenue. Once qualified and up and running, we try to recover the costs within 1 year, 1.5 years. However, that's all mix dependent and -- but it does increase our capacity. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. And then when you look at the -- you talked about the EB 8000 increasing your ability to address the lower nodes with one particular customer. Has there been other business pieces that you've not been eligible to get previous to this EB 8000? Peter C. Broadbent: No, this is specific to one customer. But it is a very significant impact.

Ladies and gentlemen, there are no further questions at this time. Constantine S. Macricostas: If there's no other questions, I'd like to thank the participants for the time. And thank you very much, and have a good day, you guys. Thank you.

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