Tower Semiconductor(TSEM) - 2022 Q1 - Quarterly Report

First Quarter 2022 Highlights Tower Semiconductor reported strong financial results for Q1 2022, with significant year-over-year growth across key metrics and an upgraded corporate credit rating Financial Performance Overview Tower Semiconductor reported record revenue of $421 million in Q1 2022, a 21% year-over-year increase, with organic revenue growing 29%; gross profit, operating profit, and net profit also saw significant year-over-year increases, reaching $105 million, $63 million, and $54 million respectively, with basic EPS at $0.50 and operating cash flow at $137 million Q1 2022 Key Financial Performance (Millions) | Metric | Q1 2022 (Millions) | Q1 2021 (Millions) | YoY Change | QoQ Change (vs Q4 2021) | | :------------------ | :----------------- | :----------------- | :--------- | :------------------------ | | Revenue | $421 | $347 | +21% | +2.18% (vs $412M) | | Organic Revenue | N/A | N/A | +29% | N/A | | Gross Profit | $105 | $70 | +50% | +5% (vs $100M) | | Operating Profit | $63 | $32 | +94% | +12.5% (vs $56M) | | Net Profit | $54 | $28 | +91% | +3.85% (vs $52M) | | Basic EPS | $0.50 | $0.26 | +92.3% | +4.17% (vs $0.48) | | Diluted EPS | $0.49 | $0.26 | +88.5% | +4.26% (vs $0.47) | | Operating Cash Flow | $137 | N/A | N/A | N/A | | Fixed Asset Investment (net) | $81 | N/A | N/A | N/A | | Debt Repayment | $31 | N/A | N/A | N/A | Corporate Credit Rating Standard & Poor's Ma'alot upgraded Tower Semiconductor's corporate credit rating and bonds series G rating from 'ilAA-' to 'ilAA' with a stable outlook in May 2022 - Corporate credit rating and bonds series G rating increased from "ilAA-" to "ilAA" by S&P Ma'alot in May 2022, with a stable horizon[7] Guidance and Conference Call Update Due to the definitive agreement with Intel Corporation announced on February 15, 2022, the company will not provide revenue guidance for Q2 2022 and will not host an earnings conference call - No Q2 2022 Revenue Guidance: Company is not providing guidance due to definitive agreement with Intel Corporation[8] - No Earnings Conference Call: Company will not host an earnings conference call[8] Non-GAAP Financial Measures Disclosure This section clarifies the company's use of non-GAAP financial measures, including 'adjusted' financial measures, EBITDA, Net Cash, and Free Cash Flow, detailing their calculation and emphasizing they are not substitutes for GAAP measures - Adjusted Financial Measures: Calculated by excluding (1) amortization of acquired intangible assets and (2) compensation expenses in respect of equity grants to directors, officers, and employees[9] - EBITDA Definition: Consists of GAAP operating profit, excluding (i) depreciation expenses, (ii) stock-based compensation expense, and (iii) amortization of acquired intangible assets[9] - Net Cash Definition: Comprised of cash, cash equivalents, short-term deposits, and marketable securities less debt amounts[9] - Free Cash Flow Definition: Calculated as net cash provided by operating activities less cash used for investments in property and equipment, net[9] - Non-GAAP Disclaimer: These adjusted financial measures should be evaluated in conjunction with, and are not a substitute for, GAAP financial measures[9] About Tower Semiconductor Tower Semiconductor is a leading foundry of high-value analog semiconductor solutions, providing technology and manufacturing platforms for integrated circuits in growing markets such as consumer, industrial, automotive, and mobile, operating multiple facilities across Israel, the U.S., and Japan, with a shared facility in Italy - Core Business: Leading foundry of high value analog semiconductor solutions, providing technology and manufacturing platforms for ICs[11] - Market Focus: Serves growing markets including consumer, industrial, automotive, mobile, infrastructure, medical, and aerospace and defense[11] - Technology Offerings: Customizable process platforms such as SiGe, BiCMOS, mixed-signal/CMOS, RF CMOS, CMOS image sensor, non-imaging sensors, integrated power management (BCD and 700V), and MEMS[11] - Manufacturing Facilities: Owns two facilities in Israel (150mm and 200mm), two in the U.S. (200mm), three in Japan (two 200mm and one 300mm through 51% holdings in TPSCo), and is sharing a 300mm facility being established in Italy by STMicroelectronics[11] Forward-Looking Statements and Risk Factors This section outlines that the press release contains forward-looking statements subject to various risks and uncertainties, including those related to market demand, capacity, customer relationships, operational fluctuations, debt, acquisitions, global economic conditions, and specific risks associated with the Intel acquisition - Forward-Looking Statements: Subject to risks and uncertainties; actual results may vary from projections[12] - Key Risk Factors include: - Demand in customer end markets and over-demand for foundry services exceeding capacity[12] - Maintaining existing customers and attracting additional customers[12] - Impact of debt and other liabilities on financial position and operations[12] - Ability to successfully execute acquisitions, integrate them, and utilize expanded capacity[12] - Fluctuations in cash flow and operating results from quarter to quarter[12] - Risks associated with the Intel Corporation acquisition: timely receipt of governmental and regulatory approvals, potential for regulatory authorities to require divestitures, occurrence of termination events, impact on business relationships, integration delays, litigation, difficulties in retaining key personnel and customers, and diverting management's attention[12][13] Financial Statements This section presents Tower Semiconductor's condensed consolidated balance sheets, statements of operations, EBITDA reconciliation, and cash flow reports for the period Condensed Consolidated Balance Sheets As of March 31, 2022, Tower Semiconductor reported total assets of $2,270,152 thousand, a slight increase from the prior quarter; total liabilities decreased marginally to $612,495 thousand, while total shareholders' equity increased to $1,657,657 thousand Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2022 | December 31, 2021 | Change (QoQ) | | :--------------------------------- | :--------------- | :---------------- | :------------- | | ASSETS | | | | | Cash and cash equivalents | $203,484 | $210,930 | $(7,446) | | Short-term deposits | $402,873 | $363,648 | $39,225 | | Marketable securities | $184,539 | $190,068 | $(5,529) | | Trade accounts receivable | $176,443 | $142,228 | $34,215 | | Inventories | $247,826 | $234,512 | $13,314 | | Other current assets | $41,629 | $54,817 | $(13,188) | | Total current assets | $1,256,794 | $1,196,203 | $60,591 | | Long-term investments | $27,235 | $39,597 | $(12,362) | | Property and equipment, net | $879,781 | $876,683 | $3,098 | | Goodwill and other intangible assets, net | $16,665 | $18,820 | $(2,155) | | Deferred tax and other long-term assets, net | $89,677 | $99,938 | $(10,261) | | TOTAL ASSETS | $2,270,152 | $2,231,241 | $38,911 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | Short-term debt | $78,165 | $83,868 | $(5,703) | | Trade accounts payable | $109,077 | $78,712 | $30,365 | | Deferred revenue and customers' advances | $49,444 | $39,992 | $9,452 | | Other current liabilities | $87,258 | $73,756 | $13,502 | | Total current liabilities | $323,944 | $276,328 | $47,616 | | Long-term debt | $190,383 | $230,972 | $(40,589) | | Long-term customers' advances | $63,872 | $69,968 | $(6,096) | | Employee related liabilities | $14,626 | $14,622 | $4 | | Deferred tax and other long-term liabilities | $19,670 | $23,962 | $(4,292) | | TOTAL LIABILITIES | $612,495 | $615,852 | $(3,357) | | TOTAL SHAREHOLDERS' EQUITY | $1,657,657 | $1,615,389 | $42,268 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $2,270,152 | $2,231,241 | $38,911 | Condensed Consolidated Statements of Operations For the first quarter of 2022, Tower Semiconductor reported revenues of $421,132 thousand, a significant increase from $347,214 thousand in Q1 2021, leading to a gross profit of $104,631 thousand and an operating profit of $63,060 thousand, with net profit attributable to the company at $54,033 thousand and basic earnings per share of $0.50 Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | March 31, 2022 | December 31, 2021 | March 31, 2021 | YoY Change (Q1 2022 vs Q1 2021) | | :--------------------------------- | :--------------- | :---------------- | :--------------- | :-------------------------------- | | REVENUES | $421,132 | $412,108 | $347,214 | +21.28% | | COST OF REVENUES | $316,501 | $311,935 | $277,400 | +14.09% | | GROSS PROFIT | $104,631 | $100,173 | $69,814 | +49.86% | | Research and development | $20,318 | $22,371 | $20,343 | -0.12% | | Marketing, general and administrative | $21,253 | $21,939 | $16,991 | +25.08% | | OPERATING PROFIT | $63,060 | $55,863 | $32,480 | +94.16% | | FINANCING AND OTHER EXPENSE, NET | $(2,133) | $(372) | $(7,842) | -72.82% | | PROFIT BEFORE INCOME TAX | $60,927 | $55,491 | $24,638 | +147.29% | | INCOME TAX BENEFIT (EXPENSE), NET | $(5,153) | $(3,614) | $5,876 | -187.69% | | NET PROFIT | $55,774 | $51,877 | $30,514 | +82.78% | | Net income attributable to non-controlling interest | $(1,741) | $(138) | $(2,192) | -20.58% | | NET PROFIT ATTRIBUTABLE TO THE COMPANY | $54,033 | $51,739 | $28,322 | +90.78% | | BASIC EARNINGS PER SHARE | $0.50 | $0.48 | $0.26 | +92.31% | | Weighted average number of shares (Basic) | $108,934 | $108,768 | $107,940 | +0.92% | | DILUTED EARNINGS PER SHARE | $0.49 | $0.47 | $0.26 | +88.46% | | Weighted average number of shares (Diluted) | $110,539 | $110,267 | $109,462 | +0.98% | Reconciliation from GAAP Operating Profit to EBITDA For Q1 2022, EBITDA was $133,649 thousand, representing a 41.4% increase from Q1 2021, derived from GAAP operating profit by adding back depreciation, stock-based compensation, and amortization of acquired intangible assets Reconciliation from GAAP Operating Profit to EBITDA (in thousands) | Metric | March 31, 2022 | December 31, 2021 | March 31, 2021 | YoY Change (Q1 2022 vs Q1 2021) | | :--------------------------------- | :--------------- | :---------------- | :--------------- | :-------------------------------- | | GAAP OPERATING PROFIT | $63,060 | $55,863 | $32,480 | +94.16% | | Depreciation | $64,368 | $64,692 | $56,624 | +13.68% | | Stock based compensation | $5,715 | $8,815 | $4,906 | +16.49% | | Amortization of acquired intangible assets | $506 | $506 | $491 | +3.05% | | EBITDA | $133,649 | $129,876 | $94,501 | +41.43% | Consolidated Sources and Uses Report The Consolidated Sources and Uses Report shows a net decrease in cash and cash equivalents for Q1 2022, from $210,930 thousand at the beginning to $203,484 thousand at the end, with net cash provided by operating activities of $136,571 thousand largely offset by investments in property and equipment and net debt repayment Consolidated Sources and Uses Report (in thousands) | Metric | March 31, 2022 | December 31, 2021 | March 31, 2021 | | :-------------------------------------------------- | :--------------- | :---------------- | :--------------- | | CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | $210,930 | $211,503 | $211,683 | | Net cash provided by operating activities | $136,571 | $133,656 | $87,413 | | Investments in property and equipment, net | $(80,840) | $(85,947) | $(49,415) | | Exercise of options | $44 | $48 | $364 | | Debt received (repaid), net | $(30,539) | $1,040 | $(29,375) | | Effect of Japanese Yen exchange rate change over cash balance | $(3,071) | $(2,102) | $(3,478) | | Investments in short-term deposits, marketable securities and other assets, net | $(29,611) | $(47,268) | $(1,611) | | CASH AND CASH EQUIVALENTS - END OF PERIOD | $203,484 | $210,930 | $215,581 | Condensed Consolidated Statements of Cash Flows For Q1 2022, net cash provided by operating activities was $136,571 thousand, offset by net cash used in investing activities of $110,451 thousand and net cash used in financing activities of $30,495 thousand, resulting in a net decrease of $7,446 thousand in cash and cash equivalents Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | March 31, 2022 | December 31, 2021 | March 31, 2021 | | :------------------------------------------ | :--------------- | :---------------- | :--------------- | | Net profit for the period | $55,774 | $51,877 | $30,514 | | Depreciation and amortization | $70,780 | $73,693 | $62,053 | | Net cash provided by operating activities | $136,571 | $133,656 | $87,413 | | Investments in property and equipment, net | $(80,840) | $(85,947) | $(49,415) | | Investments in deposits, marketable securities and other assets, net | $(29,611) | $(47,268) | $(1,611) | | Net cash used in investing activities | $(110,451) | $(133,215) | $(51,026) | | Debt received (repaid), net | $(30,539) | $1,040 | $(29,375) | | Exercise of options | $44 | $48 | $364 | | Net cash provided by (used in) financing activities | $(30,495) | $1,088 | $(29,011) | | EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGE | $(3,071) | $(2,102) | $(3,478) | | INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | $(7,446) | $(573) | $3,898 | | CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | $210,930 | $211,503 | $211,683 | | CASH AND CASH EQUIVALENTS - END OF PERIOD | $203,484 | $210,930 | $215,581 |