PLAB 10-K & 10-Q changes, risk factors and insider trading

We sell substantially all of our photomasks to semiconductordesigners orand manufacturers of IC and FPD designers,electronic manufacturers and foundries, or to other high-performance electronics manufacturers.devices. We believe that the demand for photomasks depends primarily on design activity rather than sales volume from products using photomask technologies. Consequently, an increase in semiconductor or FPD sales does not necessarily result in a corresponding increase in photomask sales. In addition, the reduced use of application-specific ICs, reductions in design complexities, other changes in the technology or methods of manufacturing or designing semiconductors or FPDs, or a slowdown in the introduction of new semiconductor or FPD designs could reduce demand for photomasks ‒ even if the demand for semiconductors and FPDs increases. Historically, the microelectronics industry has been volatile, with sharp periodic downturns and slowdowns. These negative trends have been characterized by, among other things, diminished product demand, excess production capacity, and accelerated erosion of selling prices with a concomitant effect on revenue and profitability.

Our success depends, in part, upon key managerial and technical personnel, as well as our ability to continue to attract and retain additional qualified personnel. The loss of certain key personnel (for example, our chiefChief executiveExecutive officer,Officer, chiefChief financialFinancial officer,Officer, andor chiefChief technologyTechnology officerOfficer) could have a material adverse effect on our business and results of operations. We cannot offer assurance that we can retain our key managerial and technical employees, employees, or that we can attract similar additional employees in the future.

The photomask industry has been, and we expect it to continue to be, characterized by technological change and evolving industry requirements, which recent supply chain regionalization efforts have accelerated. In order to remain competitive, we will be required to continually anticipate, respond to, and scale technologies of increasing complexity in both the traditional and emerging markets that we serve. In particular, we believe that, as semiconductor geometries continue to become smaller and FPDs become larger or otherwise more advanced, we will be required to manufacture photomasks of increasingly challenging complexity. Moreover, the demand for photomasks in non-leading-edge nodes may increase beyond our ability to meet our customers’ requirements within adequate response times. Additionally, the demand for photomasks has been, and could in the future be, adversely affected by changes in semiconductor and high-performance electronics fabrication methods that affect the type or quantity of photomasks utilized, such as changes in semiconductor demand that favor field-programmableprogrammable gateIC arraysdevices and other semiconductor designsapproaches that replace application-specific ICs, or the use of certain chip-stacking methodologies that lessen the emphasis on conventional lithography technology. Furthermore, evidence of the viability and the corresponding market acceptance of alternative methods of transferring IC designs onto semiconductor wafers could reduce or eliminate the need for photomasks in the production of semiconductors. As of the end of 2024, one alternative method, direct-write lithography, has not been proven to be a commercially viable alternative to photomasks, as it is considered to be too slow for high-volume semiconductor wafer production. However, should direct-write or any other alternative method of transferring IC or FPD designs without the use of photomasks achieve market acceptance, and if we are unable to anticipate, respond to, or utilize these or other technological changes, due to resource, technological, or other constraints, our business and results of operations could be materially adversely affected.

The photomask industry is highly competitive, and most of our customers utilize more than one photomask supplier. Our competitors include Compugraphics International, Ltd., Dai Nippon Printing Co., Ltd (outside of Taiwan and China), Hoya Corporation, LG Innotek Co., Ltd., Shenzhen Newway Photomask Making Co., Ltd., Shenzhen Qingyi Photomask, Ltd., SK-Electronics Co. Ltd., Taiwan Mask Corporation, and ToppanTekscend Electronics Products Co., Ltd.Photomask. We also compete with semiconductor and FPD manufacturers’manufacturers' captive photomask manufacturing operations, some of which market their photomask manufacturing services to outside customers. We expect to face continued competition from these and other suppliers in the future. Some of our competitors have substantially greater financial, sales, marketing, or other resources than we do. Also, when producing smaller geometry photomasks, some of our competitors may be able to more rapidly develop and produce such masks and achieve higher manufacturing yields than we can. We believe that consistency of product quality, timeliness of delivery, competitive pricing, technical capability and service are the principal factors considered by customers when selecting their photomask suppliers. Our inability to meet these competitive requirements could have a material adverse effect on our business and results of operations. In the past, competition has led to pressure to reduce prices and the need to invest in advanced manufacturing technology, which we believe contributed to the decrease in the number of independent photomask suppliers, several years ago. These pressures may worsen in the future, causing further consolidation.

In 2019, we commenced operations at our two manufacturing facilities in China. These investments are subject to substantial risks which may include, but are not limited to: the inability to protect our intellectual property rights under Chinese law, which may not offer as high a level of protection as U.S. law; unexpectedly long negotiation periods with Chinese suppliers and customers; quality issues related to materials sourced from local vendors; limited access to electricity; unexpectedly high labor costs due to a tight labor supply; and difficulty in repatriating funds and selling or transferring assets. Our investments in China also exposed us to a significant additional foreign currency exchange risk, which we had not been subject to in prior years. In addition, as tensions have, from time to time, escalated between the U.S. and China, we believe there is an enhanced risk that our substantial investments in China may be subject to unforeseen or additional restrictions, which may include expropriation of our investments by the Chinese government or restrictions imposed on our operations by the U.S. or other countries. These and other risks may result in our not realizing a return on, or losing some, or all, of our investments in China, which would have a material adverse effect on our financial condition and financial performance.

In recent years, there has been an increased focus from stakeholders on environmental, social, and governance matters, including greenhouse gas emissions and climate-related risks, sustainability, renewable energy, water stewardship, waste management, diversity, equalityequity and inclusion, responsible sourcing and supply chain, human rights, and social responsibility. Evolving stakeholder expectations and our efforts to manage these issues, report on them, and and accomplish our goals present numerous operational, regulatory, reputational, financial, legal, and other risks, any of which could have a material adverse impact, including on our reputation and stock price, reputational harm, including damage to our relationships with customers, suppliers, investors, governments, or other stakeholders, adverse impacts on our ability to manufacture and sell products and maintain our market share, the success of our collaborations with third parties, parties, increased risk of litigation, investigations, or regulatory enforcement action, unfavorable environmental, social, and governance ratings or investor sentiment, diversion of resources and increased costs to control, assess, and report on on environmental, social, and governance metrics.

The General Data Protection Regulation (“GDPR”), which went into effect in the European Union (EU) on May 25, 2018, applies to the collection, use, retention, security, processing, and transfer of personally identifiable information of residents of E.U. countries. The GDPR created a range of new compliance obligations and imposes significant fines and sanctions for violations. It is possible that the GDPR may be interpreted or applied in a manner that is adverse to, or unforeseen by us, including requirements that are inconsistent with our practices, or that we may otherwise fail to construe its requirements in ways that are satisfactory to the E.U. authorities. Upon leaving the E.U. on January 31, 2021, the U.K. enacted a new domestic data privacy law called the “U.K. – General Data Protection Regulation” (“UK-GDPR”). Although somewhat less restrictive than the GDPR, the UK-GDPR is similar to the GDPR with respect to both an entity’s obligation to protect personal information and the imposition of significant fines for violations.

Our consolidated financial statements are prepared in accordance with U.S. GAAP and are reported in U.S. dollars. Our operations have transactions and balances denominated in currencies other than the U.S. dollar; primarily the South Korean won, New Taiwan dollar, Japanese yen, Chinese renminbi,Yuan, Euro, Singapore dollar, and the British pound sterling. In 2024,2025, we recorded a net gainloss from changes in foreign currency exchange rates of $2.2$8.3 million in our consolidated statement of income, while our net assets increaseddecreased by $8.60.1 million as a result of the translation of foreign currency financial statements to U.S. dollars. Significant foreign currency fluctuations may adversely affect our results of of operations, financial condition, or cash flows.

The following should be read in conjunction with “Cautionary Statement Regarding Forward Looking Statements” and our combined consolidated financial statements and notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K.

We sell substantially all of our photomasks to semiconductor designers and manufacturers, and manufacturers of FPDs.IC and FPD electronic devices. Photomask technology is also being applied to the fabrication of other higher-performance electronichigh-technology products including advanced packaging modules, micro optical components for applications such as virtual reality/augmented reality advancedand IC packages,silicon photonics, micro-electronic mechanical systems,systems (MEMS), and certaindiverse nanotechnology applications. Our selling cycle is tightly interwoven with the development and release of new semiconductor and display designs and applications, particularly as they relate to the semiconductor industry’sindustry's migration to more advanced product innovation, design methodologies,nodes and fabrication processes. The demand for photomasks is primarily dependscorrelated onwith new product design activity ratherand thanto salesa volumeslesser fromextent productsscaling manufacturedup using semiconductorof manufacturing technologies.of end products. Consequently, an increase in semiconductor or display sales does not necessarilyalways result in a corresponding corresponding increase in photomask sales. However,To the reducedextent useintegrated circuit and flat panel display applications rely less on new design activity, it could result in a reduction in demand for photomasks. In addition, new design methodologies driving a reduction in complexity of application-specific ICs, reductions in design complexities, other changes in the technology or methods of manufacturing or designing semiconductors, or a slowdown in the introduction of new semiconductor or display designsphotomasks could also reduce demand for photomasks ‒ even if the demand for semiconductors and FPDs increases. AdvancesMore broadly, advances in semiconductor, display, and photomask design and production methods that shift the burden of achieving device performance away from lithography could also reduce the demand for photomasks. Historically,While there is no indication today that such diminishing of long range photomask demand is occurring or will occur, the microelectronics industry has been volatile, experiencing periodic downturns and slowdowns in design activity. These negative trends have been characterized by, among other things, diminished product demand, excess production capacity, and accelerated erosion of selling prices with a concomitant effect on revenue and profitability.

The global semiconductor and FPD industries are driven by end markets which have beenbroad closelyapplication tiedin tothe consumer-drivenglobal applicationseconomy of high-performance devices, including,including but not limited to,to mobileconsumer-driven displayapplications, devices,data centers that support AI mobileimplementation, communications,electric vehicles and computingnational solutions.security. While we cannot predict the timing of the industry’sindustry's transition to volume production of next-generation technology nodes, or the timing of up and down-cycles with precise accuracy, we believe that such transitions and cycles will continue into the future, beneficially and adversely affecting our business, financial condition, and operating results as they occur. We believe our ability to remain successful in these environments is dependent upon the achievement of our goals of being a service and technology leader and efficient solutions supplier, which we believe should enable us to continually reinvest in our global infrastructure.

We are focused on improving our competitiveness by advancing our technology and reducing costs and, in connection therewith, have invested and plan to continue to invest in manufacturing equipment to serve both the high-end photomask and trailing-edgemainstream markets. As we face challenges that require us to make significant improvements in our competitiveness, we continue to evaluateimplement furtherprograms to streamline, drive efficiency and reduce cost reductionin initiatives.our infrastructure.

State-of-the-art production for semiconductor masks is considered to be 287 nanometer and smaller including EUV lithography for ICs and Generation 10.5+ and8.6 AMOLED and LTPS display-based process technologies for FPDs. However, 32we define nanometerour high-end product category as 28nm and above geometriesbelow for semiconductors and Generation 810.5 plus, Generation 6 and below (excluding8 AMOLED and LTPS) process technologies for displays. This is consistent with current merchant mask industry definitions. Moreover, design nodes above 28nm and FPD processes for standard LCD displays constitutebelow theGeneration majority10 ofare designsconsidered currentlymainstream beingor fabricatedstandard in volume.products. At these geometries and various high-end nodes, we can produce full lines of photomasks, and there is no significant technology employed by our competitors that is not available to us. We expect advanced-generation designs to continue to move to production throughout fiscal 2025,2026, and we believe we are well positioned to service an increasing volume of this business as a result of our investments in manufacturing processes and technology in the regions where our customers are located.

The photomask industry has been, and is expected to continue to be characterized by technological change and evolving industry standards. In order to remain competitive, we will be required to continually anticipate, respond to, and utilize changing technologies. In particular, we believe that, as semiconductor geometries continue to become smaller, and display designs become larger or otherwise more advanced, we will be required to manufacture even more complex optically-enhanced reticles,products, including photomasks with optical proximity correction, phase-shift and EUV photomasks. Additionally, demand for photomasks has been, and could in the future be, adversely affected by changes in high-performance electronics fabrication methods that affect the type or quantity of photomasks used, such as changes in semiconductor demand that favor field-programmableprogrammable gateIC arraysdevices and other semiconductor designsapproaches that replace application-specific ICs, or the use of certain chip-stacking methodologies that lessen the emphasis on conventional lithography technology. Furthermore, increased market acceptance of alternative methods of transferring circuit designs onto semiconductor wafers could reduce or eliminate the need for photomasks in the production of semiconductors. As of the end of 2024, one alternative method, direct-write lithography, has not been proven to be a commercially viable alternative to photomasks, as it is considered to be too slow for high-volume semiconductor wafer production, and we have not experienced a significant loss of revenue as a result of this or other alternative semiconductor design methodologies. However, should direct-write lithography or any other alternative method of transferring IC designs to semiconductor wafers without the use of photomasks achieve market acceptance, and we do not anticipate, respond to, or utilize these or other changing technologies due to resource, technological, or other constraints, our business and results of operations could be materially adversely affected.

Our revenues have benefitted,benefited, and our costs, including depreciation, have been affected by the increased demand for high-end-technology photomasks that require more advanced manufacturing capabilities, but generally command higher ASPs. Our capital expenditure payments were $188.1 million, $130.9 million,million and $131.3 million and $112.3 million in 2024,2025, 20232024 and 2022,2023, respectively. Nonetheless, we intend to continue to make the required investments to support the technological and production requirements of our customers that we believe will continue to enable our growth. This includes investments to replace end-of-life mask-making equipment with higher-performing systems that better serve our customers. In support of this effort, we expect capital expenditure payments to be approximately $200$330 million in fiscal year 2025.2026.

Note: All the following tabular comparisons, unless otherwise indicated, are for the three months ended October 31, 20242025 (Q4 FY24FY25), JulyAugust 28,3, 20242025 (Q3 FY24FY25) and October 31, 20232024 (Q4 FY23FY24), and for the fiscal years ended October 31, 2025 (YTD FY25), October 31, 2024 (YTD FY24), and October 31, 2023 (YTD FY23), and October 31, 2022 (YTD FY22). Please refer to Part II, Item 7 of our 20232024 Form 10-K for comparative discussion of our fiscal years ended October 31, 2023,2024, and October 31, 2022.2023. The tables in this itemsection (Part II, Item 7) may not foot due to rounding.

Overall IC revenue increased $7.8$9.7 million or 5.0%6.5% in Q4 FY24FY25 from Q3 FY24FY25 due to strongerstrong high-endorder foundrypatterns andglobally logicincluding demandthe in Asia. OverallU.S. IC revenue decreased $0.8$6.3 million or 0.5%3.8% from Q4 FY24, as a result of a decline in maintream products partially offset by an increase in high-end demand. IC mainstream revenue decreased $2.5 million or 2.7% from Q3 FY25, and $12.1 million or 11.6% from Q4 FY24 fromprimarily Q4due FY23.to IC mainstreammarket decreased in Q4 FY24 by $2.8 million or 2.5% from Q3 FY24,conditions and $3.2geopolitical million or 2.9% from Q4 FY23 primarily the result of reduced mainstream demand in Asia.impacts.

FPD revenue increased $3.8 million or 6.9% in Q4 FY24 from Q3 FY24 due to stronger demand for mainstream products. FPD revenue decreased $4.1$4.3 million or 6.5%6.8% in Q4 FY24FY25 from Q3 FY25, and $0.5 million or 0.9% from Q4 FY23FY24 mainly due to slowerthe demanddecrease in high-end products.products, Revenuewhich fromdecreased mainstream products increased $3.8$4.8 million or 56.6%8.9% in Q4 FY24FY25 from Q3 FY24FY25 as more production capacity was dedicateddue to meettiming strongof order demand.patterns.

Overall revenue decreased $25.2 million or 2.8% in YTD FY24 from YTD FY23. IC revenue decreased $13.2$17.6 million or 2.0% in YTD FY24FY25 from YTD FY23FY24, driven by a $23.0 million or 3.6% decrease in IC revenue due to lesslower demand for mainstream products earlier in the year which wasyear, partially offset by strong demand for high-end products. FPD revenue decreasedincreased by $12.0$5.4 million or 5.0%,2.4%, driven by a $6.5$5.2 million or 16.3%15.7% decreaseincrease in revenue from mainstream productsproduct revenue due to aan decreaseincrease in G8 products.

Selling, general and administrative expenses were $20.0 million in Q4 FY25, compared with $18.4 million in Q3 FY25, and $21.0 million in Q4 FY24, compared with $19.4 million in Q3 FY24, and $16.7 million in Q4 FY23.FY24. The $1.6 million increase from Q3 FY25 was primarily the result of additional compensation and related expenses of $1.2 million. The $1.0 million decrease from Q4 FY24 was primarily the result of compensation and related expenses of $1.1 million. The $4.3 million increase from Q4 FY23 was primarily the result of increased compensation and related compensation expenses of $2.1 million and increaseddecreased professional fees of $1.4$0.5 million.

Selling, general and administrative expenses were $75.6 million in YTD FY25, compared with $77.8 million in YTD FY24, compared with $69.5 million in YTD FY23.FY24. The increasedecrease of $8.3$2.2 million is primarily due to ana increasedecrease in compensation and related expenses of $3.8$1.1 million and professional fees of $2.5$1.0 million.

Research and development expenses, which primarily consist of development and qualification efforts related to process technologies for high-end IC and FPD applications, increaseddecreased $1.7$1.1 million to $5.3$3.2 million in Q4 FY24,FY25, from Q3 FY24FY25; the increase decrease was primarily caused by increaseddecreased qualification activities.activities in the U.S. Research and development expenses in Q4 FY24FY25 increaseddecreased by $1.9$2.1 million from Q4 FY23FY24 as a result of increaseddecreased development activities in the U.S. and Asia. On a full year-to-dateyear basis, research and development expenses increaseddecreased $2.9$0.8 million, to $16.6$15.8 million, primarily due to increaseddecreased development activities in Asia, partially offset by increased research and development activity in the U.S.

Non-OperatingOther Income (Expense), net

Non-operating (expense)Other income decreasedincreased $33.3 million in Q4 FY24FY25 from Q3 FY24FY25 byand $11.1$24.9 million and from Q4 FY23 by $19.7 million,FY24, primarily due to foreign currency impacts. The foreign currency impacts were primarily driven by unfavorablefavorable movements of the New Taiwan dollar and the South Korean won, against the U.S. dollar for both periods.

The effective income tax rate increaseddecrease in Q4 FY24, compared with Q3 FY24, primarily due to changes in the period-to-period mix of jurisdictional earnings as well as an increase in foreign tax as compared to the prior quarter. The effective income tax rate increase in Q4 FY24, asFY25, compared with Q4 FY23,FY24, is primarily due to the impact of the change in valuation allowance described above, changes in the jurisdictional mix of earningsearnings, asand well as an increasea decrease in foreign tax as compared towith the prior year.

The decrease in the effective income tax rate on a full-year basis in FY24,FY25, compared with FY23,FY24, is primarily due to changes in the jurisdictional mixrelease of earnings. We consider all available evidence when evaluating the potential future realization of deferred tax assets, and when, based on the weight of all available evidence, we determine that it is more likely than not that some portion or all of our deferred tax assets will not be realized, we reduce our deferred tax assets by a valuation allowance.allowance as described above. We also regularly assess the potential outcomes of ongoing and future tax examinations and, accordingly, have recorded accruals for such contingencies. Included in the balance of unrecognized tax benefits as of October 31, 20242025 and October 31, 2023,2024, are $14.7$11.4 million and $8.9 $14.7 million respectively, recorded in Other liabilities in the consolidated balance sheets that, if recognized, would impact the effective tax rates. The October 31, 2024 valuation allowance was reduced by $(2.0) million dollars which was offset by additional FIN 48 reserve of $5.8 million.

Net income attributable to noncontrolling interests was $6.4$16.8 million in Q4 FY24,FY25, compared with $13.8$6.2 million in Q3 FY24FY25; the decreaseincrease of $10.6 million was the result of aan increase in the net decreaseincomes of our joint venture operations. Net income attributable to noncontrolling interests increased $10.5 million in Q4 FY25, compared with $6.4 million in Q4 FY24; which was the result of an increase in the net incomes of our joint venture operations. Net income attributable to noncontrolling interests decreased by $12.1 million in Q4 FY24 from Q4 FY23, and by $21.0 million in YTD FY24 from YTD FY23, as a result of decreased net income at both our Taiwan-based and China-based IC facilities.

Cash and cash equivalents waswere $598.5$492.3 million and $499.3$598.5 million as of October 31, 2024,2025, and October 31, 2023,2024, respectively. As of October 31, 2024,2025, total cash and cash equivalents included $562.1$446.1 million held by foreign subsidiaries, including an aggregate of $353.8 million held by foreignour subsidiaries.joint ventures in Taiwan and China. In addition, we currently have $42.2$95.9 million in short-term investments and RMBCNY 200 million (approximatelyor $28.1USD 25 million) of borrowing capacity in China to support local operations. See Note 8 – Debt to the consolidated financial statements for additional information on our outstanding debt and currently available financing. Our primary sources of liquidity are our cash on hand and cash we generate from operations.

On August 28, 2024, the Board of Directors authorized an increase to the Company’s existing share repurchase program from the remaining $31.7 million up to $100 million. AsIn June 2025, the Board of Directors authorized an additional $25 million share repurchase. During the fiscal year ended as of October 31, 2024,2025, therethe wasCompany $100repurchased 5.0 million remainingshares for $97.4 million. As a result, as of October 31, 2025, $27.6 million remained available under thatthis authorization. authorization. Depending on market conditions, we may utilize some or the entire remaining approved amount to reacquire additional shares.

Operating Activities: Net cash provided by operating activities reflects net income adjusted for certain non-cash items, including depreciation and amortization, share-based compensation, and the effects of changes in operating assets and liabilities. Net cash provided by operating activities decreased by $40.8$13.6 million in FY24,FY25, compared with FY23,FY24, primarily due to decreased net income and net cash-favorableunfavorable changes in working capital, predominantly in Asia.capital.

Investing Activities: Net cash flows used in investing activities increased by $55.0$82.4 million in FY24,FY25, compared to FY23, FY24, primarily driven by an increase of purchases of short-term investments of $80.4$29.0 million.million Thisand was partially offset by an increase in proceeds from the maturitypurchases of short-termproperty, investmentsplant, and equipment of $25.3$57.2 million.

Financing Activities: Net cash used in financing activities decreasedincreased by $10.8$107.6 million in FY24,FY25, compared to FY23. FY24. This was driven by aan decreaseincrease in repurchases of common stock of $97.4 million and repayments of debt of $11.8 million Our cash, cash equivalents, and restricted cash balances were positively impacted by changes in foreign currency exchange rates in FY24 of $2.1$11.4 million.

Non-GAAP Net Income attributable to Photronics, Inc. shareholders and non-GAAP diluted earnings per share attributable to Photronics, Inc. shareholders are “non-GAAP financial measures” as such term is defined by Regulation G of the Securities and Exchange Commission,Commission and may differ from similarly named non-GAAP financial measures used by other companies. The financial tables below reconcile Photronics, Inc. financial results under U.S. GAAP to our non-GAAP financial information. We believe these non-GAAP financial measures that exclude certain items are useful for analysts and investors to evaluate ourthe Company’s on-going performance because they enable a more meaningful comparison of historical results of the ourCompany’s core business. These non-GAAP metrics are not a measure of consolidated operating results under U.S. GAAP and should not be considered as an alternative to Net income (loss), Net income (loss) per share, or any other measure of consolidated results under U.S. GAAP. The items excluded from these non-GAAP metrics,metrics but included in the calculation of their closest U.S. GAAP equivalent, are significant components of the condensed consolidated statement of income and must be considered in performing a comprehensive assessment of overall financial performance.

The following table reconciles U.S. GAAP net income and diluted earnings per share attributable to Non-GAAPPhotronics, IncomeInc. shareholders to non-GAAP net income and diluted earnings per share attributable to Photronics, Inc. shareholders for the indicated periods. The columns may not foot due to rounding.

Our current business outlook and guidance was provided in our Full Year and Fourth Quarter Fiscal 20242025 Results earnings call, and related slide deck.deck, but is not incorporated herein. These can be accessed in the investor section of our website - www.photronics.com. Information included on our website is not incorporated in this Form 10-K.

Our future results of operations and the other forward-looking statements contained in this filing and in our “Full Year and Fourth Quarter Fiscal 20242025 Results” earnings call and presentation involve a number of of risks and uncertainties, some of which are discussed in Part I, Item 1A of this report. AThese factors and a number of other unforeseeable factors could cause actual results to differ materially from our expectations.

See Note 1 to our consolidated financial statements ofin this report for recent accounting pronouncements that may affect our financial reporting.

State-of-the-art production for semiconductor masks is considered to be 4 or 5 nanometer and smaller including EUV lithography for ICs and Generation 8.6 AMOLED display-based process technologies for FPDs. However, we define our high-end product category as 28nm and below for semiconductors and Generation 10.5 plus, Generation 6 and 8 AMOLED and LTPS for displays. This is consistent with current merchant mask industry definitions. Moreover, design nodes above 28nm and FPD processes for standard LCD displays below Generation 10 are considered mainstream or standard products. At these geometries and various high-end nodes, we can produce full lines of photomasks, and there is no significant technology employed by our competitors that is not available to us. We expect advanced advanced-generationnode designs to continue to move to production throughout fiscal 2026, and we believe we are well positioned to service an increasing volume of this business as a result of our investments in manufacturing processes and technology in the regions where our customers are located.

The photomask industry has been and is expected to continue to be characterized by technological change and evolving industry standards. In order to remain competitive, we will be required to continually anticipate, respond to, and utilize changing technologies. In particular, we believe that, as semiconductor geometries continue to become smaller and/or more complex, and display designs become larger or otherwise more advanced, we will be required to manufacture even more complex products, including photomasks with advanced optical proximity correction, insertionincrease of curvilinear patterning and EUV photomasks. Additionally, demand for photomasks has been, and could in the future be, adversely affected by changes in high-performance electronics fabrication methods that affect the type or quantity of photomasks used, such as changes in semiconductor demand that favor programmable IC devices and other approaches that that replace application-specific ICs, or the use of certain chip-stacking methodologies that lessen the emphasis on conventional lithography technology. Furthermore, increased market acceptance of alternative methods of transferring circuit designs onto semiconductor wafers could reduce or eliminate the need for photomasks in the production of semiconductors.

Our revenues have benefited, and our costs, including depreciation, have been affected by the increased demand for high-end-technology photomasks that require more advanced manufacturing capabilities, but generally command higher ASPs. Our year-to-date capital expenditure payments were $93.4$130.4 million and $95.7 $120.6 million in Q2the FY26nine months ended August 2, 2026 and Q2the FY25,nine months ended August 3, 2025, respectively. Nonetheless, we intend to continue to make the required investments to support the technological and production requirements of our customers that we believe will continue to enable our growth. This includes investments to replace end-of-life mask-making equipment with higher-performing systems that better serve our customers. In support of this effort, we expect capital expenditure payments to be approximatelyin $330the range of $255 million to $305 million in fiscal year 2026.

All the following tabular comparisons, unless otherwise indicated, are for the three three-month and six-month periodsmonths ended August 2, 2026, May 3, 2026 (Q2and FY26),August February3, 1,2025 and the nine months ended August 2, 2026 (Q1 FY26) and MayAugust 4,3, 2025 (Q2 FY25). The tables in this section may not foot due to rounding.2025.

The following tables present changes in revenue disaggregated by product type and geographic origin, in Q2 FY26 from revenue in prior reporting periods.origin.

Quarterly Changes in Revenue by Product Type ($ in millions)

Quarterly Changes in Revenue by Geographic Origin ($ in millions) **

ICRevenue in revenuethe decreasedthree $17.9months ended August 2, 2026 increased $6.1 million or 10.8% in Q2 FY26 2.9% compared with Q1the FY26,three months ended May 3, 2026, mainly due to improved business conditions in Taiwan along with the U.S. and decreasedSouth $8.4Korea, particularly at the high-end. Revenue increased $5.7 million or 5.4% compared with Q2 FY25, primarily due to delayed design releases. For the first six months of FY26, IC revenue increased $3.0 million or 1.0%2.7% compared with the first six three months ofended FY25,August 3, 2025, primarily driven by increased globalhigher demand forin high-endour products.IC business.

FPD revenue decreased $1.1 million or 1.7% in the three months ended August 2, 2026 compared with the three months ended May 3, 2026, and decreased $1.2 million or 1.9% compared with the three months ended August 3, 2025 influenced by the timing of consumer electronic launches in emerging markets that were impacted by the industry's tight memory conditions. FPD revenue increased $2.7$7.7 million or 4.4% in Q2 FY26 compared with Q1 FY26, and increased $7.3 million or 13.3% compared with Q2 FY25 primarily due to strong demand for high-end products in the Asia IT display market. For the first sixnine months ofended FY26August FPD revenue increased $8.9 million or 7.9%2, 2026 compared with the first sixnine months ofended FY25,August primarily3, driven2025, bymainly due to the increased demand for both mainstreamhigh-end and high-endmainstream products.

Gross margin decreasedincreased to 33.2% forin the first sixthree months ofended FY26,August 2, 2026 compared with 36.3%31.3% forin the first sixthree months ofended FY25,May 3, 2026, primarily due to highera materialfavorable product costs,mix laboras well as increased revenue and benefitsthe costs,associated andoperating otherleverage in manufacturing costs.our financial model.

Selling, general and administrative expenses were $20.8$22.5 million in Q2the FY26,three months ended August 2, 2026, an increase of $1.8 million compared with $21.3$20.8 million in the three months ended May 3, 2026, and an increase of $4.1 million compared with $18.4 million in Q1the FY26,three andmonths $18.1ended millionAugust in3, Q2 FY25. Compared with Q1 FY26, selling, general and administrative expenses decreased $0.6 million2025, primarily due to lower labor and benefits costs. Compared with Q2 FY25, selling, general and administrative expenses increased by $2.7 million primarily due to higher labor and benefits costs.costs and professional services.

For the first six months of FY26, selling, Selling, general and administrative expenses were $42.1$64.6 million in the nine months ended August 2, 2026, compared with $37.2$55.6 million forin the first sixnine months ofended FY25.August 3, 2025. The increase of $4.9$9.0 million was primarily due to higher labor and benefits costs.costs and professional services.

Research and development expenses, which primarily consist of development and qualification efforts related to process technologies for high-end IC and FPD applications, were $3.7 million in the three months ended August 2, 2026, compared with $2.8 million in Q1 FY26the three months ended May 3, 2026 and $4.1$4.3 million in Q2the FY25.three months ended August 3, 2025. The $0.2$0.9 million increase from Q1the FY26three months ended May 3, 2026 was primarily due to increased qualification activities in Asia.Asia and the U.S. The $1.3$0.6 million decrease from Q2the FY25three months ended August 3, 2025 was primarily due to reduced development activities in the U.S.

Research and development expenses were $5.4$9.1 million forin the first sixnine months ofended FY26,August 2, 2026, compared with $8.3$12.6 million forin the first sixnine months ofended FY25.August 3, 2025. The $2.9 $3.5 million decrease was primarily due to reduced development qualification activities in the U.S.

Other Income decreased $8.0$2.3 million in Q2the FY26three months ended August 2, 2026 compared with Q1the FY26three months ended May 3, 2026 and increased $37.5 $18.8 million compared with Q2the FY25,three months ended August 3, 2025, primarily due to foreign currency transaction gains and losses. These foreign currency impacts were primarily driven by fluctuations in the New Taiwan dollar and the South Korean won relative to the U.S. dollar.

Other Income increased by $32.1$51.0 million forin the first six nine months ofended FY26August 2, 2026 compared with the first sixnine months ofended FY25,August 3, 2025, primarily due to foreign currency transaction gains and losses driven by favorable movementsmovement in the New Taiwan dollar and the South Korean won relative to the U.S. dollar.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The OBBBA includes significant changes to federal tax law and other regulatory provisions that may impact the Company. As the legislation enacted applies to tax years beginning after December 31, 2024, the impacts are effective starting in our FY26. The Company has evaluated applicable provisions of the OBBBA for FY26 and has included the estimated impacts within the FY26 provision.

The effective income tax rate increased in Q2the FY26,three months ended August 2, 2026, compared with Q1the FY26,three months ended May 3, 2026, primarily due to an increase in foreign taxes as well as changes in the jurisdictional mix of earnings.

The effective income tax rate increaseddecreased in Q2the FY26,three months ended August 2, 2026, compared with Q2the FY25,three months ended August 3, 2025, primarily due to ana increasedecrease in foreign taxes as well as changes in the jurisdictional mix of earnings.

The effective income tax rate decreasedecreased in YTDthe FY26nine months ended August 2, 2026 compared with YTDthe FY25,nine ismonths ended August 3, 2025, primarily due to an investment tax creditcredits in a non-U.S. jurisdiction in FY26.

Net income attributable to noncontrolling interests wasincreased $29.1to $15.0 million in the three months ended August 2, 2026, compared with $11.8 million in YTDthe FY26,three months comparedended withMay $30.83, 2026, and increased by $8.7 million in YTDthe FY25.three months ended August 2, 2026 from the three months ended August 3, 2025. The $1.7increase millionobserved in decreaseboth wasperiods ais resultprimarily ofattributable decreasedto the net income atincrease thein Company’sour Taiwan-based joint-venturejoint operations.venture.

Our primary sources of liquidity are our cash on hand and cash we generate from operations. Cash and cash equivalents were $511.5$549.5 million and $492.3 million as of MayAugust 3,2, 2026, and October 31, 2025, respectively. As of MayAugust 3,2, 2026, total total cash and cash equivalents included $464.9$509.9 million held by foreign subsidiaries, including an aggregate of $389.2$408.5 million held by our joint ventures in Taiwan and China (consisting of $323.4$330.7 million held by our joint venture in Taiwan and $65.8 $77.8 million held by our joint ventures in China). In addition, we currently have CNY 200 million or $25 million of borrowing capacity, at our discretion, in China to support local operations. This facility is subject to annual reviews and extensions with a current expiration date of JulyAugust 31, 2026.2027. As of MayAugust 3,2, 2026, PDMCX had no outstanding borrowings against the facility.

We continually evaluate alternatives for efficiently funding our capital expenditures and ongoing operations. These reviews may result in our engagement in a variety of investing and financing transactions,transactions inincluding borrowings, the transfer of cash among subsidiaries, and/or the repatriation of cash to the U.S. The transfer of funds among subsidiaries could be subject to foreign withholding taxes; in certain jurisdictions, repatriation of these funds to the U.S. may subject them to U.S. state income taxes and/or local country withholding taxes. We believe that our liquidity, including available financing, is sufficient to meet our requirements through the next twelve months and thereafter for the foreseeable future. Through the utilization of our existing liquidity, the cash we generate from operations and short-term investments, we plan to continue to invest in our business, with investments targeted to alignat aligning with our customers’ technology road maps. In addition, we stand ready to invest in mergers, acquisitions, or strategic partnerships, should a suitable opportunity arise.

We estimate our capital expenditures for fiscal year 2026 willto be approximatelyin $330the range of $255 million to $305 million mainly in Asia and the U.S.; these investments will be targeted towards high-end and mainstream capacity that will increase the operating capability and efficiency, and enable us to support our customers’ near-term demands. As of MayAugust 3,2, 2026, we had outstanding capital commitments of approximately $172.0$215.3 million and accrued liabilities related to capital equipment purchases of approximately $39.3$48.9 million. Although payment timing could vary, primarily as a result of the timing of tool delivery, installation and testing, we currently estimate that we will fund $199.0$257.3 million of our total $211.3 $264.2 million committed and recognized obligations for capital expenditures over the next twelve months.

On August 28, 2024, the Board of Directors authorized an increase to the Company’s existing share repurchase program from the remaining $31.7 million to $100 million. In June 2025, the Board of Directors authorized an additional $25 million of share repurchases. During the fiscal year ended October 31, 2025, the Company repurchased 5.0 million shares for $97.4 million. During the three-monththree months and six-monthnine periodsmonths ended MayAugust 3,2, 2026, the Company did not repurchase any shares. As a result, $27.6 million remained available under this authorization as of MayAugust 3,2, 2026. Depending on market conditions, we may utilize some or the entire remaining approved amount to reacquire additional shares.

As discussed in Note 6 – PDMCX Joint Venture of the Company’s condensed consolidated financial statements, DNP, the noncontrolling interest in the Company’s China-based joint venture has, under certain circumstances, the right to put its interest in the joint venture to Photronics, or to purchase the Company’s interest in the joint venture. Under all such circumstances, the sale of DNP’s interest would be at its ownership percentage of the joint venture’s net book value, with closing to take place within three business days of obtaining required approvals and clearance. As of the date of issuance of this report, DNP had not indicated its intention to exercise this right. As of August May 3,2, 2026, Photronics and DNP each had net investments in this joint venture of approximately $177.1$183.3 million.

Operating Activities: Net cash from operating activities reflects net income adjusted for certain non-cash items, including depreciation and amortization, share-based compensation, and the effects of changes in operating assets and liabilities. Net cash provided by operating activities increased by $34.4$60.6 million in YTDthe FY26,nine months ended August 2, 2026, compared with the samenine periodmonths ofended FY25,August 3, 2025, primarily due to the increased net income and positive changes in working capital.

Investing Activities: Net cash flows used in investing activities increaseddecreased by $37.0$22.9 million in YTDthe FY26,nine months ended August 2, 2026, compared towith the samenine periodmonths inended FY25,August 3, 2025, primarily driven by an increase in purchases of short-term investments of $78.1 million, partially offset by $37.4 million increase in proceeds from maturities and sales of short-term investments of $113.7 million, partially offset by an $82.1 million increase in purchases of short-term investments.

Financing Activities: Net cash used in financing activities decreased by $94.7$115.0 million in YTDthe FY26,nine months ended August 2, 2026 compared towith the samenine periodmonths inended FY25.August 3, 2025. This was primarily driven by a decrease in debt repayments of $18.0 million and common stock repurchases of $76.7$97.4 million and debt repayments of $18.0 million.

Our current business outlook and guidance was provided in the Photronics Q2third FY26quarter fiscal year 2026 earnings press release, earnings presentation, and financial results conference call, but is not incorporated herein. These can be accessed in the investor section of our website - www.photronics.com. Information included on our website is not incorporated in this Form 10-Q.

Our future results of operations and the other forward-looking statements contained in this filing and in the Photronics Q2third FY26quarter fiscal year 2026 earnings press release, and the related financial results conference call and earnings presentation involve a number of risks and uncertainties, some of which were discussed in Part I, Item 1A of our 2025 Form 10-K. These factors and a number of other unforeseeable factors could cause actual results to differ materially from our expectations.