Tower Semiconductor(TSEM) - 2022 Q3 - Quarterly Report

Third Quarter 2022 Results Overview Financial Performance Highlights Tower Semiconductor achieved record Q3 2022 revenue of $427 million, a 10% YoY increase, with a 16.2% net profit margin exceeding its target Financial Performance Highlights | Metric (in millions of USD) | Q3 2022 | Q2 2022 | Q3 2021 | YoY Change (Q3 22 vs Q3 21) | QoQ Change (Q3 22 vs Q2 22) | | :-------------------------- | :------ | :------ | :------ | :-------------------------- | :-------------------------- | | Revenue | 427 | 426 | 387 | +10% | +0.2% | | Organic Revenue Growth | - | - | - | +22% | - | | Gross Profit | 125 | 112 | 85 | +46% | +11.6% | | Operating Profit | 79 | 71 | 44 | +79% | +11.3% | | Net Profit | 69 | 58 | 39 | +77% | +19.0% | | Net Profit Margin | 16.2% | - | - | - | - | | Basic EPS | 0.63 | 0.53 | 0.36 | +75% | +18.9% | | Diluted EPS | 0.62 | 0.53 | 0.36 | +72% | +17.0% | - The net profit margin reached 16.2% in Q3 2022, surpassing the company's publicly stated goal of achieving a 15% net profit margin in 2022, set in November 2021[5] Cash Flow and Debt Repayment The company generated strong operating cash flow in Q3 2022 while investing in fixed assets and repaying debt Cash Flow and Debt Repayment | Metric (in millions of USD) | Q3 2022 | | :-------------------------- | :------ | | Cash flow from operations | 122 | | Net investments in fixed assets | 45 | | Debt repayments | 28 | Company Outlook and Corporate Information Guidance and Conference Call The company is not providing Q4 2022 revenue guidance or holding a conference call due to its definitive agreement with Intel - Due to the definitive agreement with Intel Corporation, the company is not providing revenue guidance for the fourth quarter of 2022 and will not hold an earnings conference call[8] About Tower Semiconductor Tower Semiconductor is a leading foundry for high-value analog semiconductor solutions serving various high-growth markets - The company is a leading foundry for high-value analog semiconductor solutions, offering customizable process platforms such as SiGe, BiCMOS, mixed-signal/CMOS, RF CMOS, CMOS image sensors, non-imaging sensors, integrated power management (BCD and 700V), and MEMS[10] - The company operates multiple manufacturing facilities globally, including in Israel (150mm and 200mm), the US (200mm), Japan (200mm and 300mm, through a 51% stake in TPSCo), and a 300mm facility in Italy in partnership with STMicroelectronics[10] Non-GAAP Financial Measures Definitions and Reconciliations Non-GAAP measures like adjusted financials and EBITDA are used to provide a clearer view of operations by excluding specific items - Adjusted financial measures exclude: - Amortization of acquired intangible assets - Stock-based compensation expense - Restructuring costs (including approximately $4 million related to the 2022 shutdown of the Arai factory in Japan)[9] - EBITDA is defined as GAAP operating profit, excluding: - Depreciation expenses - Stock-based compensation expenses - Amortization of acquired intangible assets - Restructuring costs related to the Arai manufacturing facility in Japan[9] - Free Cash Flow is calculated as net cash provided by operating activities minus net investments in property and equipment[9] Legal Disclosures Forward-Looking Statements and Risk Factors This release contains forward-looking statements, with actual results subject to numerous risks and uncertainties including the Intel acquisition - Forward-looking statements are subject to various risks and uncertainties, and actual results may differ from projections[11] - Key risk factors include: demand in customers' end markets, demand for foundry services exceeding capacity, customer retention and attraction, impact of high utilization on cycle time/yields/delivery, quarterly performance fluctuations, debt impact, M&A execution, cash flow volatility, global economic downturns, semiconductor industry cyclicality, technological developments, competition, intellectual property, retention of key employees, currency and interest rate fluctuations, regulatory requirements, and risks related to the Intel acquisition transaction (e_g_, regulatory approvals, termination, impact on business relationships, litigation)[11][12] Condensed Consolidated Financial Statements (Unaudited) Balance Sheets Total assets and shareholders' equity increased as of September 30, 2022, compared to year-end 2021 Balance Sheets | Metric (in thousands of USD) | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------- | :----------- | :----------- | | Total Assets | 2,384,410 | 2,231,241 | | Total Liabilities | 631,484 | 615,852 | | Shareholders' Equity | 1,752,926 | 1,615,389 | Statements of Operations (Three Months Ended) The company demonstrated strong profitability in Q3 2022 with year-over-year growth in revenue and net profit Statements of Operations (Three Months Ended) | Metric (in thousands of USD) | Sep 30, 2022 | Jun 30, 2022 | Sep 30, 2021 | | :--------------------------- | :----------- | :----------- | :----------- | | Revenue | 427,087 | 426,168 | 386,706 | | Gross Profit | 124,511 | 112,440 | 85,376 | | Operating Profit | 79,208 | 70,674 | 44,165 | | Net Profit | 66,682 | 58,173 | 40,367 | | Basic EPS | 0.63 | 0.53 | 0.36 | | Diluted EPS | 0.62 | 0.53 | 0.36 | Statements of Operations (Nine Months Ended) For the nine months ended September 30, 2022, revenue and profit metrics showed substantial growth over the prior year Statements of Operations (Nine Months Ended) | Metric (in thousands of USD) | Sep 30, 2022 | Sep 30, 2021 | | :--------------------------- | :----------- | :----------- | | Revenue | 1,274,387 | 1,096,058 | | Gross Profit | 341,582 | 228,945 | | Operating Profit | 212,942 | 110,648 | | Net Profit | 180,629 | 102,198 | | Basic EPS | 1.66 | 0.91 | | Diluted EPS | 1.64 | 0.90 | Reconciliation from GAAP Operating Profit to EBITDA The reconciliation from GAAP operating profit shows EBITDA reached $157.6 million in Q3 2022, a significant sequential and annual increase Reconciliation from GAAP Operating Profit to EBITDA | Metric (in thousands of USD) | Sep 30, 2022 | Jun 30, 2022 | Sep 30, 2021 | | :--------------------------- | :----------- | :----------- | :----------- | | GAAP Operating Profit | 79,208 | 70,674 | 44,165 | | Depreciation | 67,343 | 60,886 | 63,021 | | Stock-based compensation | 6,526 | 5,543 | 5,452 | | Amortization of intangibles | 509 | 508 | 504 | | Restructuring costs | 4,033 | -- | -- | | EBITDA | 157,619 | 137,611 | 113,142 | Consolidated Sources and Uses Report Cash and cash equivalents increased significantly in Q3 2022, driven by cash from operations and net investment activities Consolidated Sources and Uses Report | Metric (in thousands of USD) | Sep 30, 2022 | Jun 30, 2022 | Sep 30, 2021 | | :--------------------------- | :----------- | :----------- | :----------- | | Beginning Cash and Cash Equivalents | 211,177 | 203,484 | 215,755 | | Net Cash from Operating Activities | 122,402 | 138,097 | 106,974 | | Net Investments in Fixed Assets | (45,134) | (49,377) | (87,714) | | Net Debt Repayments | (28,164) | (8,211) | (29,211) | | Net Investments in Short-term Deposits, Marketable Securities & Other Assets | 129,257 | (65,134) | 6,250 | | Ending Cash and Cash Equivalents | 390,369 | 211,177 | 211,503 | Statements of Cash Flows In Q3 2022, net cash was provided by operating and investing activities, while financing activities used cash Statements of Cash Flows | Cash Flow Type (in thousands of USD) | Sep 30, 2022 | Jun 30, 2022 | Sep 30, 2021 | | :----------------------------------- | :----------- | :----------- | :----------- | | Net Cash from Operating Activities | 122,402 | 138,097 | 106,974 | | Net Cash from Investing Activities | 84,123 | (114,511) | (81,464) | | Net Cash from Financing Activities | (22,695) | (8,211) | (29,165) |