Key Takeaways:
Photronics shares crashed 36% on May 28, wiping out $1.1 billion in market value after second-quarter earnings contradicted prior management statements about the company's operations and prospects.
"Our investigation is focused on whether Photronics may have misled investors about the propriety of reversing the allowance that it previously deemed unrealizable," Reed Kathrein, the Hagens Berman partner leading the firm's investigation, said.
The photomask manufacturer reported sequential declines across every major metric: revenue fell 6.7%, IC revenue dropped 11%, operating margins contracted 17.6%, GAAP net income declined 26.8%, and non-GAAP net income fell 30%. The results followed a Dec. 10, 2025 earnings call where the company reversed a tax valuation allowance, boosting non-GAAP EPS by about 17.6% and sending shares up 45% that day.
The reversal had been justified by management citing "an improvement in our US execution and outlook," CFO Eric Rivera said on the December call. The Q2 results now raise questions about whether those statements were accurate. SEC filings show insiders sold more than $15 million in shares during the three months before the May 28 report.
The tax valuation allowance had originally been recorded because "the benefit was previously deemed unrealizable," Rivera explained in December. US GAAP required the reversal "given the improved performance and outlook of our US business," resulting in a $16.8 million positive contribution to GAAP net income. The maneuver lifted the company's non-GAAP EPS by about 17.6%, drawing a positive market reaction at the time.
Photronics is a leading manufacturer of photomasks, high-precision quartz or glass plates containing microscopic images of electronic circuits used in integrated circuits and flat panel displays. IC sales comprise the bulk of its total revenue.
The 36% single-day decline puts Photronics shares at their lowest level since before the December accounting reversal, testing support levels not seen in months. Investors will watch for any SEC inquiry or shareholder lawsuit filings in the coming weeks as the Hagens Berman investigation progresses.
This article is for informational purposes only and does not constitute investment advice.
