Overview

Management’s discussion and analysis (“MD&A”) of the Company’s financial condition and results of operations should be read in conjunction with its condensed consolidated financial statements and related notes. Various sections of this MD&A contain forward-looking statements, all of which are presented based on current expectations, which may be adversely affected by uncertainties and risk factors that may cause actual results to materially differ from these expectations.

The Company sells substantially all of its photomasks to semiconductor designers and manufacturers, and manufacturers of FPDs. Photomask technology is also being applied to the fabrication of other higher-performance electronic products. The demand for photomasks primarily depends on design activity rather than sales volumes from products manufactured using photomask technologies. Historically, the microelectronics industry has been volatile, experiencing periodic downturns and slowdowns in design activity.

The Company is typically required to fulfill customer orders within a short period of time, resulting in a minimal level of backlog. However, the demand for some IC photomasks has in the past expanded beyond the industry’s capacity to supply them within the traditional time period.

The global semiconductor and FPD industries are driven by end markets which have been closely tied to consumer-driven applications of high-performance devices. The Company believes its ability to remain successful is dependent upon the achievement of its goals of being a service and technology leader and efficient solutions supplier.

Results of Operations

The following tables present selected operating information expressed as a percentage of revenue:

Revenue in Q1 FY25 of $212.1 million represented a decrease of 4.7% compared with Q4 FY24 and a decrease of 1.9% from Q1 FY24, due to seasonal softness and mainstream weakness in Asia and Europe.

IC revenue decreased 6.0% in Q1 FY25 from Q4 FY24 primarily due to a decrease in mainstream, while FPD revenue decreased 1.2% over the same period.

Gross margin decreased by 140 basis points in Q1 FY25 compared to Q4 FY24, primarily due to the decrease in revenue, partially offset by decreases in material and other costs.

Selling, general and administrative expenses decreased $1.9 million in Q1 FY25 from Q4 FY24, primarily due to lower compensation and professional fees.

Research and development expenses decreased $1.0 million in Q1 FY25 from Q4 FY24, primarily due to reduced qualification activities in Asia.

Other income (expense), net increased significantly in Q1 FY25 compared to prior periods, primarily due to favorable foreign currency impacts.

The effective income tax rate decreased in Q1 FY25 compared to prior periods, primarily due to changes in the jurisdictional mix of earnings and a decrease in foreign taxes.

Net income attributable to noncontrolling interests increased in Q1 FY25 compared to prior periods, as a result of increased net income at the Company’s Taiwan-based IC facilities.

Liquidity and Capital Resources

Cash and cash equivalents were $642.2 million as of February 2, 2025, including $550.2 million held by foreign subsidiaries. The Company has CNY 200 million (approximately $27.7 million) of borrowing capacity in China.

The Company plans to continue investing in its business, targeting high-end and mainstream capacity to support customer demands. Estimated capital expenditures for fiscal year 2025 are approximately $200 million.

The Company has an existing share repurchase program, with $95.4 million remaining as of February 2, 2025.

The Company’s cash flows from operating, investing, and financing activities are summarized in the table below:

The Company’s cash flows were positively impacted by increased net cash from operating activities and investing activities in Q1 FY25 compared to Q1 FY24.

Business Outlook

The Company’s current business outlook and guidance was provided in the Q1 FY25 earnings release, presentation, and conference call, which can be accessed on the investor section of the Company’s website.

The Company’s future results of operations and forward-looking statements involve a number of risks and uncertainties, some of which were discussed in the Company’s 2024 Form 10-K.

Critical Accounting Estimates

There have been no changes to the Company’s critical accounting estimates since the filing of its 2024 Form 10-K.