Global Merchant Photomask Leader

Virtual Analyst and Investor Day

December 14, 2020

INC.

PHOTRONICS,INC.

Safe Harbor Statement

This presentation and some of our comments may contain projections or other forward-looking statements regarding future events, our future financial performance, and/or the future performance of the industry. These statements are predictions, and contain risks and uncertainties. Actual events or results may differ materially from those presented. These statements include words like "anticipate", "believe", "estimate", "expect", "forecast", "may", "plan", "project", "in our view" or the negative thereto. We cannot guarantee the accuracy of any forecasts or estimates, and we are not obligated to update any forward-looking statements if our expectations change. If you would like more information on the risks involved in forward-looking statements, please see the documents we file from time to time with the Securities and Exchange Commission.

INC.

PHOTRONICS,INC.

12/14/2020

2

Overview & Strategy

Peter Kirlin, CEO

INC.

PHOTRONICS,INC.

Today's objectives

  • Present PLAB investment thesis
  • Review progress since 2018 investor day
  • Describe next growth phase
  • Demonstrate alignment with market trends
  • Provide long-term financial targets
  • Answer your questions

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PHOTRONICS,INC.

12/14/2020

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PHOTRONICS,INC. INC.

A Compelling Investment Thesis

  • Global leader in merchant photomask industry
    • Delivering growth by leveraging core competencies
    • Growing more quickly than the market
  • Technology aligned with secular growth trends
    • China industry expansion (IC & FPD) - Made in China 2025
    • Display technology inflections
  • Investment growth strategy to double EPS
    • Top-linegrowing at twice industry growth rate
    • Operating leverage expands margins
    • Increasing cash flow to fund growth and share repurchase

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Leading merchant with unmatched global presence

Largest Merchant Photomask Manufacturer ($M)

Unmatched Global Footprint

11 Strategically Located Manufacturing Facilities

PHOTRONICS,INC. INC.

PLAB

A

B

C

D

E

IC

FPD

Sources: SEMI 2019 Photomask Characterization Study; internal estimates

12/14/2020

IC

FPD

IC & FPD

6

Phases of Photronics revenue growth

INC. INC.

Revenue ($M)

800

700

600

500

400

  1. Phase I: 1969 - 1986
  1. Technology Startup
    Organic Growth

100 Mostly US

Pre-IPO

Phase IV: 2018 and Beyond

Leverage China 1st Mover Advantage

Extend Technology Leadership

Increase Market Share

Strategic Capital Allocation

Phase II: 1986 - 2002

M&A Growth

Merchant Consolidation

Global Expansion

Phase III: 2003 - 2017

Enter High-End Market

Form Strategic Partnerships

Invest in High-End Capability

Establish FPD Presence

Improve Balance Sheet

PHOTRONICS,

0

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

1969 ==== 1982 1983 1984

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7

Investment focus driving financial results

INC. INC.

Converting Investments Into Revenue ($M)

610

535

551

451

191

119

144

100

350

416

406

418

2017

2018

2019

2020

Funding Capital Allocation ($M)

329

279

178

141

131

207

93

57

53

68

71

69

2018

2019

2020

PHOTRONICS,

IC

FPD

Capex

Cash

Debt

OCF

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PHOTRONICS,INC. INC.

Delivering on commitments

2018 Investor Day Commitment

Results

Growth

$630M revenues and $0.80 EPS

$610M and $0.52, impacted by COVID lockdowns

& trade war

China production to start H119

Hefei delivered; Xiamen plan modified

Market Position

Enter G10.5+ market

Market leader

Grow market share

Delivered

Cash / net cash equal to pre-

2017: cash = $308M; net cash = $246M

Financial Strength

investment

2020: cash = $279M; net cash = $210M plus $79M

in share repurchases since 2018

Improve ROIC

2017 = 1.4%

2020 = 3.9%

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PHOTRONICS,INC. INC.

Growing China business

China Revenue ($M)

208

43

2017

2020

IC

FPD

12/14/2020

  • We have growing business in China
    • 34% of total revenue in 2020
      • 23% of IC revenue
      • 58% of FPD revenue
    • Growing strong since 2017
      • IC +67% CAGR
      • FPD +71% CAGR
  • Local manufacturing accelerates growth
  • Customer contracts fosters sustainable results
  • IC JV enables us to compete more effectively

10

FPD nearly doubled over 3 years

PHOTRONICS,INC. INC.

FPD Revenue ($M)

191

100

2017

2020

High-End

Mainstream

  • Targeted high-end investments
    • G10.5+
    • AMOLED & LTPS for mobile
  • Partner with largest panel makers
  • Runway left for advance display growth
    • Mobile platforms
    • Advanced TV
    • Mini & Micro LED
  • 2021 investments aligned with market trends

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11

PHOTRONICS,INC. INC.

Evolving investment focus

2018 Strategic Targets

2020 Strategic Targets

G10.5+

Complete

Advanced display technologies: AMOLED for

AMOLED inflection point

mobile; OLED for TV/IT; emerging Micro and Mini

LED

China geographic expansion

Continues, driven by Made In China 2025

industrial policy and growing nationalism

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2021-2023 Targets

  • Double industry growth rates: 5-7%
  • Expanding gross and operating margins, reaching high twenties and high teens, respectively
  • More than doubling EPS to well in excess of $1 / share

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PHOTRONICS,INC.

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Summary

  • We have sustained double digit growth in a very challenging environment over the past 3 years
  • Our leadership position is expanding
  • Moving forward our investment focus is narrowing to drive accretive growth
  • With a business model demonstrated to deliver increasing shareholder value

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PHOTRONICS,INC.

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Delivering Technology to the Market

Chris Progler, CTO

INC.

PHOTRONICS,INC.

PHOTRONICS,INC. INC.

Photomasks help enable the connected world

• Golden age of design and integration as differentiators

• Global dynamics enhance mask value: technology, yield, cost, speed, security, trust

• Increasing barriers to entry

• Leadership through partnership: Process of Record, Long-Term Purchase Agreement, Joint Development Projects

• Market pushing more technology into masks: customization, design activity

• Multi-node supply and demand trends favorable

Mask Enables Robust Design Market Win for Customer

•

Focused and opportunity driven investments:

region, customer, technology

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PHOTRONICS,INC. INC.

Photomask opportunity transcends lithography design nodes

High-End

Chip enablement

Design integration

New fab ramp

Mid-Range

Time to market

Design flexibility

Yield

Legacy

Cost

Capacity

Continuity

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17

INC.

High-tech photomask demand drivers

  • IC
    • EUV - mask and litho tech still maturing, consumes heavy writing resource
    • Mask complexity and count needed for advanced designs
    • SoC trends - multi-function customization alongside SoC disaggregation
    • Cloud to edge computing migration and design activity
  • FPD
    • Mask carrying more of lithography load
    • AMOLED migrating down from premium smartphones
    • TV display innovation: lighting, size, resolution, compensations
    • Gaming, remote work and learning driving demand

PHOTRONICS,INC.

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PHOTRONICS,INC. INC.

Photomask velocity: A key differentiator

  • Speed of design turns takes center stage across the landscape
    • Advanced mask complexity, level count and yield
    • Capacity constraints at mid and legacy nodes
  • Technologies that enable our photomask velocity
    • Customer collaboration tools to streamline process development
    • High yielding, self-correcting and efficient mask processes
    • Rapid mask tuning connected to device and panel performance
    • Process fan out and nanometer scale harmonization for tech localization
  • Technology investments for IC are targeted at delivering world class mask velocity
    • We are developing technology to transform the speed at which first time right photomasks can be delivered to customers

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19

Technology as a tool to support our business growth

Growth Investment Cycle

High-End Revenue ($M)

269

Increase

Develop

Profitability

High-End

213

and Cash

Technology

Flow

and Capability

INC.

Capture Share of

High-Growth, High-

PHOTRONICS,INC.

End Business

2018

2020

IC

FPD

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PHOTRONICS,INC. INC.

How has China's strategy energized served markets for growth?

  • Domestic investments add local capacity to win share and support national agenda
  • Foreign competition must improve product innovation to sustain advantage and share
  • Integrated circuits and displays elevated to center stage in economic and security landscape
  • Photomasks stand at crossroad of design and manufacturing enablement
  • Examples:
    • 70% of LCD and 50% of AMOLED capacity to China by 2021
    • Advanced TV shipments to double by 2024. Mask count per advanced TV on path to doubling.
    • Foundry capital spending increased >35% in 2020

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PHOTRONICS,INC. INC.

"Made in China 2025" driving growth

China FPD Mask TAM ($M)

500

400

300

200

100

-

2019

2021E

2023E

G5

G8

G6 LTPS/AMOLED

G10.5+

Source: Internal Estimates

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22

Summary

Collaboration and

Teamwork

Customer

Global Scale,

Roadmap and

Transfer and

Advanced

Backup

Technology

PHOTRONICS,INC.INC.

12/14/2020

  • Photomasks are enabling technology for IC and display in the connected world
  • Key tech inflections driving growth
    • China investment and global share goals in IC and FPD: LCD to mobile pivot, multi-node IC design activity
    • Sweet spot mid-range IC nodes to support pervasive chip implementation. Capacity constraints.
    • Leaders continue innovation driving advanced mask complexity and outsourcing
    • IC and display take center stage for global economic and security independence
  • Our investment strategy is aligned with these market trends
  • We develop focused processes and products to enhance customer yield and time to market
  • We are the leading trusted partner in the marketplace

23

Financial Model & Outlook

John Jordan, CFO

INC.

PHOTRONICS,INC.

2020 Summary

  • Several revenue records established
    • Revenue of $609.7M
    • FPD revenue of $191.3M
    • China revenue of $207.5M (IC = $97.1M; FPD = $110.5M)
  • Operating income improved 23% Y/Y
  • Generated $143M in cash from operating activities, invested $71M in capex, and returned $34M in cash to shareholders
  • China facilities contributed $79M in revenue with operating loss of $2M; Hefei was profitable for the year

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PHOTRONICS,INC.

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PHOTRONICS,INC. INC.

Illustrative Target Model

2018

2019

2020

Illustrative Target Model

3-Year Horizon

Revenue

$535

$551

$610

$700

$725

$750

5% CAGR

6% CAGR

7% CAGR

Gross Margin

25%

22%

22%

24-26%

26-28%

27-29%

Operating

12%

9%

10%

13-15%

15-17%

17-19%

Margin

Operating

$131

$68

$143

$150-160

$160-170

$175-185

Cash Flow

Free Cash

$39

($83)

$77

$80-90

$90-100

$100-110

Flow

EPS

$0.59

$0.44

$0.52

$1.00-1.05

$1.15-1.25

$1.25-1.35

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26

Clear capital deployment priorities

PHOTRONICS,INC. INC.

  • Fund organic growth
    • Geographic expansion into China
    • Investments to maintain technical leadership
    • Capacity expansion when reciprocated by customer commitment
    • Financial discipline to improve ROIC
  • Explore strategic M&A
    • Photomask industry - IC & FPD
    • Adjacencies to increase revenue diversification
  • Share repurchase
    • Repurchased 7.9M shares ($79M) since 2018
    • Redeemed $115M in convertible debt since 2016, eliminating 10.3M potentially dilutive shares

Reducing Diluted Shares

(Million Shares)

79

6557

Q315

Q420

Possible Future

Scenario

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27

Financial discipline improves shareholder value

  • Targeted investments drive top-line growth in excess of market
  • Operating leverage and cost reductions expand margins
    • Target operating margins mid- to high-teens
    • Target incremental margins 50%
  • Strong cash flow generation fortifies balance sheet
  • Capital deployment priorities to improve ROIC

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PHOTRONICS,INC.

12/14/2020

28

Summary

  • Recent performance on upward trend
  • Growing more quickly than markets
  • Margin expansion creates earnings power
  • Strong cash flow generation
  • Strategic use of cash to fund growth and enhance shareholder returns

INC.

PHOTRONICS,INC.

12/14/2020

29

PHOTRONICS,INC. INC.

A Compelling Investment Thesis

  • Global leader in merchant photomask industry
    • Delivering growth by leveraging core competencies
    • Growing more quickly than the market
  • Technology aligned with secular growth trends
    • China industry expansion (IC & FPD) - Made in China 2025
    • Display technology inflections
  • Investment growth strategy to double EPS
    • Top-linegrowing at twice industry growth rate
    • Operating leverage expands margins
    • Increasing cash flow to fund growth and share repurchase

12/14/2020

30

PHOTRONICS,INC. INC.

Questions?

Thank you for your interest!

For Additional Information:

R. Troy Dewar, CFA

Vice President, Investor Relations

203.740.5610

tdewar@photronics.com

INC.

PHOTRONICS,INC.

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Photronics Inc. published this content on 14 December 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 December 2020 14:10:05 UTC