Tower Semiconductor(TSEM) - 2023 Q1 - Quarterly Report

Executive Summary Fourth Quarter 2022 Highlights The company reported a 6% year-over-year organic revenue increase and a 61% rise in net profit for Q4 2022 Q4 2022 Financial Highlights | Metric | Q4 2022 | Q4 2021 | YoY Change | Q3 2022 | | :----- | :------ | :------ | :--------- | :------ | | Revenue | $403M | $412M | -2% | $427M | | Organic Revenue YoY Growth | 6% | N/A | N/A | N/A | | Gross Profit | $125M | $100M | +25% | $125M | | Operating Profit | $99M | $56M | +77% | $79M | | Net Profit | $83M | $52M | +61% | $69M | | Basic EPS | $0.76 | $0.48 | +58.3% | $0.63 | - Gross profit increase was primarily due to replacing approximately $20 million of contractual revenue from Arai with higher margin organic foundry customer revenue[4] Full Year 2022 Highlights Full-year 2022 saw record revenue of $1.68 billion and a 76% increase in net profit, achieving a 16% net margin FY 2022 Financial Highlights | Metric | FY 2022 | FY 2021 | YoY Change | | :----- | :------ | :------ | :--------- | | Revenue | $1.68B | $1.51B | +11% | | Organic Revenue YoY Growth | 23% | N/A | | Gross Profit | $466M | $329M | +42% | | Operating Profit | $312M | $167M | +87% | | Net Profit | $265M | $150M | +76% | | Net Profit Margin | 16% | N/A | | Basic EPS | $2.42 | $1.39 | +74.1% | - The full year 2022 results reflect record revenue and increased profitability, with a 16% net margin[1][11] Financial Performance Overview Fourth Quarter 2022 Results Q4 2022 featured strong organic growth and significant profitability improvements despite a slight total revenue decrease Revenue Analysis Q4 2022 Revenue Comparison | Metric | Q4 2022 | Q4 2021 | YoY Change | Q3 2022 | | :----- | :------ | :------ | :--------- | :------ | | Total Revenue | $403M | $412M | -2% | $427M | | Organic Revenue YoY Growth | 6% | N/A | N/A | N/A | Profitability Metrics Q4 2022 Profitability Comparison | Metric | Q4 2022 | Q4 2021 | YoY Change | Q3 2022 | | :----- | :------ | :------ | :--------- | :------ | | Gross Profit | $125M | $100M | +25% | $125M | | Operating Profit | $99M | $56M | +77% | $79M | | Net Profit | $83M | $52M | +61% | $69M | | Basic EPS | $0.76 | $0.48 | +58.3% | $0.63 | | Diluted EPS | $0.75 | $0.47 | +59.6% | $0.62 | - Operating profits for Q4 2022 included restructuring income, net, of $14 million, compared to a $4 million cost in Q3 2022, related to the Arai cessation of operations[5] Cash Flow and Debt Q4 2022 Cash Flow and Debt | Metric | Q4 2022 | | :----- | :------ | | Cash flow from operating activities | $133M | | Investment in fixed assets | $38M | | Debt repaid | $11M | Full Year 2022 Results The company achieved robust full-year 2022 results with double-digit revenue growth and substantial profitability gains Revenue Analysis FY 2022 Revenue Comparison | Metric | FY 2022 | FY 2021 | YoY Change | | :----- | :------ | :------ | :--------- | | Total Revenue | $1.68B | $1.51B | +11% | | Organic Revenue YoY Growth | 23% | N/A | Profitability Metrics FY 2022 Profitability Comparison | Metric | FY 2022 | FY 2021 | YoY Change | | :----- | :------ | :------ | :--------- | | Gross Profit | $466M | $329M | +42% | | Operating Profit | $312M | $167M | +87% | | Net Profit | $265M | $150M | +76% | | Net Profit Margin | 16% | N/A | | Basic EPS | $2.42 | $1.39 | +74.1% | | Diluted EPS | $2.39 | $1.37 | +74.5% | - Full-year operating profit for 2022 included $10 million in restructuring income, net, related to the Arai cessation of operations[10] Cash Flow and Debt FY 2022 Cash Flow and Debt | Metric | FY 2022 | | :----- | :------ | | Cash flow from operating activities | $530M | | Investment in fixed assets | $214M | | Debt repaid | $78M | Company Outlook and Information Business Outlook and Conference Call The company will not provide Q1 2023 guidance or host an earnings call due to the pending Intel acquisition - No Q1 2023 revenue guidance or earnings conference call will be provided due to the definitive agreement with Intel Corporation[13] About Tower Semiconductor The company is a leading foundry for high-value analog semiconductor solutions with a global manufacturing footprint - Tower Semiconductor is a leading foundry of high-value analog semiconductor solutions, providing technology and manufacturing platforms for integrated circuits (ICs) in growing markets such as consumer, industrial, automotive, mobile, infrastructure, medical, and aerospace and defense[16] - The company offers a broad range of customizable process platforms including SiGe, BiCMOS, mixed-signal/CMOS, RF CMOS, CMOS image sensor, non-imaging sensors, integrated power management (BCD and 700V), and MEMS[16] - Tower Semiconductor operates manufacturing facilities in Israel (2), the U.S. (2), Japan (2 through TPSCo), and is sharing a 300mm manufacturing facility being established in Italy by STMicroelectronics[16] Forward-Looking Statements and Risk Factors This report contains forward-looking statements subject to risks including market demand, operations, and the Intel acquisition - Forward-looking statements are subject to risks and uncertainties, and actual results may vary from those projected or implied[17] - Potential risks include demand in end markets, over-demand exceeding capacity, maintaining and attracting customers, operating results fluctuations, impact of debt, ability to execute acquisitions, and risks associated with the Intel Corporation acquisition[17] - A more complete discussion of risks and uncertainties is available under the heading 'Risk Factors' in Tower's most recent filings on Forms 20-F and 6-K with the SEC[18] Non-GAAP Financial Measures Non-GAAP Definitions and Reconciliations This section defines non-GAAP metrics like EBITDA and Free Cash Flow and reconciles them to comparable GAAP measures - Adjusted financial measures exclude amortization of acquired intangible assets, compensation expenses for equity grants, and restructuring income, net, related to the Arai manufacturing factory cessation of operations[15] - EBITDA is defined as GAAP operating profit, excluding depreciation expenses, stock-based compensation expense, amortization of acquired intangible assets, and restructuring cost (income, net) in relation to the Arai manufacturing factory[15] - Free Cash Flow is calculated as net cash provided by operating activities less cash used for investments in property and equipment, net[15] Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets Total assets grew to $2.55 billion in 2022, driven by increases in cash, deposits, and property and equipment Key Balance Sheet Items (in thousands) | Metric | Dec 31, 2022 | Dec 31, 2021 | | :----- | :----------- | :----------- | | Total Assets | $2,547,608 | $2,231,241 | | Total Liabilities | $659,067 | $615,852 | | Total Shareholders' Equity | $1,888,541 | $1,615,389 | | Cash and cash equivalents | $340,759 | $210,930 | | Short-term deposits | $495,359 | $363,648 | | Property and equipment, net | $962,258 | $876,683 | Condensed Consolidated Statements of Operations (Quarterly) The quarterly income statement details revenue and profit metrics, highlighting the impact of restructuring income Quarterly Income Statement (in thousands, except per share data) | Metric | Dec 31, 2022 | Sep 30, 2022 | Dec 31, 2021 | | :----- | :----------- | :----------- | :----------- | | REVENUES | $403,227 | $427,087 | $412,108 | | GROSS PROFIT | $124,726 | $124,511 | $100,173 | | OPERATING PROFIT | $98,732 | $79,208 | $55,863 | | NET PROFIT ATTRIBUTABLE TO THE COMPANY | $83,324 | $69,135 | $51,739 | | BASIC EARNINGS PER SHARE | $0.76 | $0.63 | $0.48 | | DILUTED EARNINGS PER SHARE | $0.75 | $0.62 | $0.47 | - Restructuring income, net, for the three months ended December 31, 2022, was $13.592 million, compared to a restructuring cost of $4.033 million for the three months ended September 30, 2022, due to the Arai cessation of operations[23] Condensed Consolidated Statements of Operations (Annual) The annual income statement shows significant year-over-year growth in revenue and a 76% increase in net profit Annual Income Statement (in thousands, except per share data) | Metric | Dec 31, 2022 | Dec 31, 2021 | | :----- | :----------- | :----------- | | REVENUES | $1,677,614 | $1,508,166 | | GROSS PROFIT | $466,308 | $329,118 | | OPERATING PROFIT | $311,674 | $166,511 | | NET PROFIT ATTRIBUTABLE TO THE COMPANY | $264,569 | $150,012 | | BASIC EARNINGS PER SHARE | $2.42 | $1.39 | | DILUTED EARNINGS PER SHARE | $2.39 | $1.37 | - Restructuring income, net, for the year ended December 31, 2022, was $9.559 million, resulting from the Arai cessation of operations as part of Japan operations reorganization[25] Reconciliation from GAAP Operating Profit to EBITDA This section reconciles GAAP operating profit to EBITDA, detailing adjustments for depreciation and other non-cash items EBITDA Reconciliation (in thousands) | Metric | Q4 2022 | Q3 2022 | Q4 2021 | FY 2022 | FY 2021 | | :----- | :------ | :------ | :------ | :------ | :------ | | GAAP OPERATING PROFIT | $98,732 | $79,208 | $55,863 | $311,674 | $166,511 | | Depreciation | $69,456 | $67,343 | $64,692 | $262,053 | $242,811 | | Stock based compensation | $6,431 | $6,526 | $8,815 | $24,215 | $25,144 | | Amortization of acquired intangible assets | $510 | $509 | $506 | $2,033 | $1,993 | | Restructuring and impairment cost (income, net) | $(13,592) | $4,033 | -- | $(9,559) | -- | | EBITDA | $161,537 | $157,619 | $129,876 | $590,416 | $436,459 | Condensed Consolidated Statement of Changes in Shareholders' Equity Shareholders' equity increased in 2022, primarily due to net profit and stock-based compensation Key Changes in Shareholders' Equity (in thousands) | Metric | Amount (Dec 31, 2022) | | :----- | :-------------------- | | BALANCE AS OF JANUARY 31, 2022 | $1,615,389 | | Net Profit | $264,569 | | Employee stock-based compensation | $24,215 | | Foreign currency translation adjustments | $(18,026) | | BALANCE AS OF DECEMBER 31, 2022 | $1,888,541 | Condensed Consolidated Sources and Uses Reports The report details cash sources and uses, showing strong operating cash flow funding investments and debt repayment Key Sources and Uses of Cash (in thousands) | Metric | Q4 2022 | Q3 2022 | Q4 2021 | FY 2022 | FY 2021 | | :----- | :------ | :------ | :------ | :------ | :------ | | CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | $390,369 | $211,177 | $211,503 | $210,930 | $211,683 | | Net cash provided by operating activities | $132,750 | $122,402 | $133,656 | $529,820 | $421,293 | | Investments in property and equipment, net | $(38,186) | $(45,134) | $(85,947) | $(213,537) | $(279,260) | | Debt received (repaid), net | $(11,465) | $(28,164) | $1,040 | $(78,379) | $(77,315) | | CASH AND CASH EQUIVALENTS - END OF PERIOD | $340,759 | $390,369 | $210,930 | $340,759 | $210,930 | Condensed Consolidated Statements of Cash Flows The annual cash flow statement reflects a substantial increase in cash from operations for 2022 Annual Cash Flow Summary (in thousands) | Metric | FY 2022 | FY 2021 | | :----- | :------ | :------ | | Net cash provided by operating activities | $529,820 | $421,293 | | Net cash used in investing activities | $(329,448) | $(338,944) | | Net cash used in financing activities | $(66,650) | $(76,857) | | INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | $129,829 | $(753) | | CASH AND CASH EQUIVALENTS - END OF PERIOD | $340,759 | $210,930 |