Tower Semiconductor Reports Third Quarter 2020 Results and Guides Fourth Quarter Significant Revenue Increase

MIGDAL HAEMEK, Israel, Nov. 12, 2020 (GLOBE NEWSWIRE) — Tower Semiconductor (NASDAQ: TSEM & TASE: TSEM) reported today its results for the third quarter ended September 30, 2020.

Third
Quarter Results Overview

Revenues for the third quarter of 2020 were $310 million, as compared to $310 million in the prior quarter and $312 million in the third quarter of 2019.

G
ross profit and operating profit for the third quarter of 2020 were $53 million and $19 million as compared to $58 million and $22 million in the prior quarter and as compared to $58 million and $23 million in the third quarter of 2019.

Net profit for the third quarter of 2020 was $15 million, or $0.14 basic and diluted earnings per share, as compared to net profit of $19 million, or $0.18 basic and diluted earnings per share in the prior quarter, and $22 million or $0.21 basic and diluted earnings per share in the third quarter of 2019.

EBITDA for the third quarter of 2020 was $79 million, as compared to $82 million in the prior quarter and to $75 million in the third quarter of 2019.

As announced in the beginning of September, the Company’s IT safeguards identified a security incident on some of its systems. The Company took immediate actions to prevent damage, shutting down all of its Israeli and US IT systems, hence halting those facilities. In less than a week, all factories were returned to operational capability. Due to the effective procedures, there was no damage to the functional quality of the work in progress, with Company and customer data protected. Activities further securing the Company’s IT environment were put in place.

The impact of this event on Company’s operations was between 8-12 days of missed new wafer starts and, as the incident occurred during the last month of the quarter, during a demand ramp, it lost multiple weeks of full fab activity levels.

Cash flow generated from operations in the third quarter of 2020 was $69 million with investment in fixed assets, net of $67 million that included payments related to the 300mm facility capacity expansion program. In addition, in the third quarter of 2020, the company repaid $26 million of its debt.

Shareholders’ equity as of September 30, 2020 was a record of $1.41 billion, as compared to $1.35 billion as of December 31, 2019, and current ratio as of September 30, 2020 was 4.1X as compared to 4.3X as of December 31, 2019.

Business Outlook

Tower Semiconductor expects revenues for the fourth quarter of 2020 to be $340 million, with an upward or downward range of 5%, demonstrating 10% quarter over quarter growth and 11% year over year growth.

Mr. Russell Ellwanger, Chief Executive Officer of Tower Semiconductor, commented: “Our fourth quarter of 2020 revenue growth guidance, 17% quarter over quarter and 14% year over year organic, driven by continued and increased strength in our RF and Power IC served markets, sets a good bridge to the new year. We look forward to 2021, with RF and Power IC continuing the present trend and increases in both industrial sensors and power discrete served markets, as evidenced by customer demand forecasts, and backed by market research reports. This strength should couple well with our increased 300mm and 200mm capability and capacity expansions.”

Teleconference and Webcast

Tower Semiconductor will host an investor conference call today, Thursday, November 12, 2020, at 10:00 a.m. Eastern time (9:00 a.m. Central time, 8:00 a.m. Mountain time, 7:00 a.m. Pacific time and 5:00 p.m. Israel time) to discuss the company’s financial results for the third quarter of 2020 and its outlook.

This call will be webcast and can be accessed via Tower Semiconductor’s website at www.towersemi.com or by calling 1-888-642-5032 (U.S. Toll-Free), 03-918-0644 (Israel), +972-3-918-0644 (International). For those who are not available to listen to the live broadcast, the call will be archived on Tower Semiconductor’s website for 90 days.

The Company presents its financial statements in accordance with U.S. GAAP. The financial information included in the tables below includes unaudited condensed financial data. Some of the financial information in this release and/ or in related public disclosures or filings with respect to the financial statements and/ or results of the Company, which we describe in this release as “adjusted” financial measures, are non-GAAP financial measures as defined in Regulation G and related reporting requirements promulgated by the Securities and Exchange Commission as they apply to our Company. These adjusted financial measures are calculated excluding one or both of the following: (1) amortization of acquired intangible assets and (2) compensation expenses in respect of equity grants to directors,
officers,
and employees. These adjusted financial measures should be evaluated in conjunction with, and are not a substitute for, GAAP financial measures. The tables also present the GAAP financial measures, which are most comparable to the adjusted financial measures, as well as a reconciliation between the adjusted financial measures and the comparable GAAP financial measures. As used and/ or presented in this release and/ or in related public disclosures or filings with respect to the financial statements and/ or results of the Company, as well as calculated in the tables herein, the term Earnings Before Interest Tax Depreciation and Amortization (EBITDA) consists of net profit in accordance with GAAP, excluding financing
and other income (
expense
)
, net, taxes, non-controlling interest, depreciation and amortization expense and stock-based compensation expense. EBITDA is reconciled in the tables below from GAAP operating profit. EBITDA is not a required GAAP financial measure and may not be comparable to a similarly titled measure employed by other companies. EBITDA and the adjusted financial information presented herein and/ or in related public disclosures or filings with respect to the financial statements and/ or results of the Company, should not be considered in isolation or as a substitute for operating profit, net profit or loss, cash flows provided by operating, investing and financing activities, per share data or other profit or cash flow statement data prepared in accordance with GAAP. The term Net Cash, as used and/ or presented in this release and/ or in related public disclosures or filings with respect to the financial statements and/ or results of the Company, is comprised of cash, cash equivalents, short-term deposits and marketable securities less debt amounts as presented in the balance sheets included herein. The term Net Cash is not a required GAAP financial measure, may not be comparable to a similarly titled measure employed by other companies and should not be considered in isolation or as a substitute for cash, debt, operating profit, net profit or loss, cash flows provided by operating, investing and financing activities, per share data or other profit or cash flow statement data prepared in accordance with GAAP.
The term Free Cash Flow, as used and/ or presented in this release and/ or in related public disclosures or filings with respect to the financial statements and/ or results of the Company, is calculated to be net cash provided by operating activities (in the amounts of $6
9
million, $6
7
million and $7
3
million for the three months periods ended
September 30, 2020,
June 30
, 2020 and September 30, 2019
, respectively) less cash used for investments in property and equip
ment, net (in the amounts of $67
million, $63 million and $
43
million for the three months periods ended
September 30, 2020, June 30, 2020 and September 30, 2019
, respectively)
.
The term Free Cash Flow is not a required GAAP financial measure, may not be comparable to a similarly titled measure employed by other companies and should not be considered in isolation or as a substitute for operating profit, net profit or loss, cash flows provided by operating, investing and financing activities, per share data or other profit or cash flow statement data prepared in accordance with GAAP
.

About Tower Semiconductor

Tower Semiconductor Ltd. (NASDAQ: TSEM, TASE: TSEM), the leader in high-value analog semiconductor foundry solutions, provides technology and manufacturing platforms for integrated circuits (ICs) in growing markets such as consumer, industrial, automotive, mobile, infrastructure, medical and aerospace and defense. Tower Semiconductor focuses on creating positive and sustainable impact on the world through long term partnerships and its advanced and innovative analog technology offering, comprised of a broad range of 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. Tower Semiconductor also provides world-class design enablement for a quick and accurate design cycle as well as Transfer Optimization and development Process Services (TOPS) to IDMs and fabless companies. To provide multi-fab sourcing and extended capacity for its customers, Tower Semiconductor operates two manufacturing facilities in Israel (150mm and 200mm), two in the U.S. (200mm) and three facilities in Japan (two 200mm and one 300mm) through TPSCo. For more information, please visit www.towersemi.com.

CONTACTS:
Noit Levy | Investor Relations | +972 74 737 7556 | [email protected]

This press release includes forward-looking statements, which are subject to risks and uncertainties. Actual results may vary from those projected or implied by such forward-looking statements and you should not place any undue reliance on such forward-looking statements. Potential risks and uncertainties include, without limitation, risks and uncertainties associated with: (i) demand in our customers’ end markets; (ii) over demand for our foundry services and/or products that exceeds our capacity; (iii) maintaining existing customers and attracting additional customers, (iv) high utilization and its effect on cycle time, yield and on schedule delivery which may cause customers to transfer their product(s) to other fabs, (v) operating results fluctuate from quarter to quarter making it difficult to predict future performance, (vi) impact of our debt and other liabilities on our financial position and operations, (vii) our ability to successfully execute acquisitions, integrate them into our business, utilize our expanded capacity and find new business, (viii) fluctuations in cash flow, (ix) our ability to satisfy the covenants stipulated in our agreements with our lender banks and bondholders (as of September 30, 2020 we are in compliance with all such covenants included in our banks’ agreements, bond G indenture and others), (x) pending litigation, (xi) new customer engagements, qualification and production ramp-up at our facilities, including TPSCo and the San Antonio facility, (xii) meeting the conditions set in the approval certificates received from the Israeli Investment Center under which we received a significant amount of grants in past years, (xiii) receipt of orders that are lower than the customer purchase commitments, (xiv) failure to receive orders currently expected, (xv) possible incurrence of additional indebtedness, (xvi) effect of global recession, unfavorable economic conditions and/or credit crisis, (xvii) our ability to accurately forecast financial performance, which is affected by limited order backlog and lengthy sales cycles, (xviii) possible situations of obsolete inventory if forecasted demand exceeds actual demand when we manufacture products before receipt of customer orders, (xix) the cyclical nature of the semiconductor industry and the resulting periodic overcapacity, fluctuations in operating results and future average selling price erosion, (xx) the execution of debt re-financing and/or fundraising to enable the service of our debt and/or other liabilities and/or for strategic opportunities and the possible unavailability of such financing and/ or the availability of such financing in unfavorable terms , (xxi) operating our facilities at high utilization rates which is critical in order to cover a portion or all of the high level of fixed costs associated with operating a foundry, and our debt, in order to improve our results, (xxii) the purchase of equipment to increase capacity, the timely completion of the equipment installation, technology transfer and raising the funds therefor, (xxiii) the concentration of our business in the semiconductor industry, (xxiv) product returns, (xxv) our ability to maintain and develop our technology processes and services to keep pace with new technology, evolving standards, changing customer and end-user requirements, new product introductions and short product life cycles, (xxvi) competing effectively, (xxvii) use of outsourced foundry services by both fabless semiconductor companies and integrated device manufacturers; (xxviii) achieving acceptable device yields, product performance and delivery times, (xxix) our dependence on intellectual property rights of others, our ability to operate our business without infringing others’ intellectual property rights and our ability to enforce our intellectual property against infringement, (xxx) our fab3 landlord’s construction project adjacent to our fabrication facility, including possible temporary reductions or interruptions in the supply of utilities and/ or fab manufacturing, as well as claims that our noise abatement efforts are not adequate under the terms of the amended lease; (xxxi) retention of key employees and recruitment and retention of skilled qualified personnel, (xxxii) exposure to inflation, currency rates (mainly the Israeli Shekel and Japanese Yen) and interest rate fluctuations and risks associated with doing business locally and internationally, as well fluctuations in the market price of our traded securities, (xxxiii) issuance of ordinary shares as a result of conversion and/or exercise of any of our convertible securities, as well as any sale of shares by any of our shareholders, or any market expectation thereof, which may depress the market price of our ordinary shares and may impair our ability to raise future capital, (xxxiv) meeting regulatory requirements worldwide, including environmental and governmental regulations, (xxxv) potential engagement for fab establishment, joint venture and/or capital lease transactions for capacity enhancement in advanced technologies, (xxxvi) potential effect on TPSCo and the Company due to the sale of PSCS (a company holding 49% of TPSCo) by Panasonic to Nuvoton, (xxxvii) industry and market impact due to the coronavirus and its potential impact on our business, operational continuity, supply chain, revenue and profitability; (xxxviii) potential security, cyber and privacy breaches, including the recently announced security incident, and (xxxix) business interruption due to fire and other natural disasters, the security situation in Israel and other events beyond our control such as power interruptions.

A more complete discussion of risks and uncertainties that may affect the accuracy of forward-looking statements included in this press release or which may otherwise affect our business is included under the heading “Risk Factors” in Tower’s most recent filings on Forms 20-F and 6-K, as were filed with the Securities and Exchange Commission (the “SEC”) and the Israel Securities Authority. Future results may differ materially from those previously reported. The Company does not intend to update, and expressly disclaims any obligation to update, the information contained in this release.

(Financial tables follow)

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
                     
                     
            September 30,   June 30,   December 31,
            2020   2020   2019
                     
A S S E T S            
                     
  CURRENT ASSETS            
    Cash and cash equivalents $ 207,704 $ 258,793 $ 355,561
    Short-term deposits   313,029   269,263   215,609
    Marketable securities   183,946   195,886   176,070
    Trade accounts receivable   118,111   128,401   126,966
    Inventories   204,933   210,129   192,256
    Other current assets   30,379   28,158   22,019
      Total current assets   1,058,102   1,090,630   1,088,481
                     
  LONG-TERM INVESTMENTS   41,303   41,219   40,085
                     
  PROPERTY AND EQUIPMENT, NET   780,596   765,895   681,939
                     
  GOODWILL AND INTANGIBLE ASSETS, NET   15,806   16,298   17,281
                     
  DEFERRED TAX AND OTHER LONG-TERM ASSETS, NET 88,878   91,834   105,047
                     
      TOTAL ASSETS $ 1,984,685 $ 2,005,876 $ 1,932,833
                     
                     
LIABILITIES AND SHAREHOLDERS’ EQUITY            
                     
  CURRENT LIABILITIES            
    Short-term debt $ 86,717 $ 79,668 $ 65,932
    Trade accounts payable   104,354   154,517   119,199
    Deferred revenue and customers’ advances   9,660   8,455   10,322
    Other current liabilities   58,098   68,192   57,603
      Total current liabilities   258,829   310,832   253,056
                     
  LONG-TERM DEBT   229,266   219,764   245,821
                     
  LONG-TERM CUSTOMERS’ ADVANCES   25,780   27,570   28,196
                     
  LONG-TERM EMPLOYEE RELATED LIABILITIES   16,717   14,970   13,285
                     
  DEFERRED TAX AND OTHER LONG-TERM LIABILITIES 40,536   40,596   45,752
                     
      TOTAL LIABILITIES   571,128   613,732   586,110
                     
      TOTAL SHAREHOLDERS’ EQUITY   1,413,557   1,392,144   1,346,723
                     
        TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,984,685 $ 2,005,876 $ 1,932,833
                     

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars and share count in thousands, except per share data)
                 
                 
        Three Months Ended
        September 30,


  June 30,   September 30,
        2020    2020    2019 
                 
REVENUES $ 310,212   $ 310,090   $ 312,122  
                 
COST OF REVENUES   256,751     252,385     253,841  
                 
    GROSS PROFIT   53,461     57,705     58,281  
                 
OPERATING COSTS AND EXPENSES:            
                 
  Research and development   19,569     19,424     18,722  
  Marketing, general and administrative   14,803     16,154     16,840  
                 
        34,372     35,578     35,562  
                 
                 
    OPERATING PROFIT   19,089     22,127     22,719  
                 
FINANCING AND OTHER INCOME (EXPENSE), NET   (565 )   1,831     (426 )
                 
    PROFIT BEFORE INCOME TAX   18,524     23,958     22,293  
                 
INCOME TAX BENEFIT (EXPENSE), NET   (2,798 )   (2,484 )   61  
                 
    NET PROFIT   15,726     21,474     22,354  
                 
Net income attributable to non-controlling interest   (528 )   (2,422 )   (166 )
                 
    NET PROFIT ATTRIBUTABLE TO THE COMPANY $ 15,198   $ 19,052   $ 22,188  
                 
                 
BASIC EARNINGS
PER SHARE
$ 0.14   $ 0.18   $ 0.21  
                 
Weighted average number of shares   107,475     106,956     106,644  
                 
                 
DILUTED EARNINGS PER SHARE $ 0.14   $ 0.18   $ 0.21  
                 
Weighted average number of shares   108,500     108,277     107,601  
                 
                 
RECONCILIATION FROM GAAP NET PROFIT TO ADJUSTED NET PROFIT:        
                 
  GAAP NET PROFIT $ 15,198   $ 19,052   $ 22,188  
    Stock based compensation   3,460     3,795     3,775  
    Amortization of acquired intangible assets   490     493     492  
  ADJUSTED NET PROFIT $ 19,148   $ 23,340   $ 26,455  
                 
ADJUSTED BASIC AND DILUTED EARNINGS PER SHARE $ 0.18   $ 0.22   $ 0.25  
                 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars and share count in thousands, except per share data)
             
             
        Nine Months Ended
        September 30,
        2020     2019  
             
REVENUES $ 920,473   $ 928,293  
             
COST OF REVENUES   756,764     753,454  
             
    GROSS PROFIT   163,709     174,839  
             
OPERATING COSTS AND EXPENSES:        
             
  Research and development   58,407     56,702  
  Marketing, general and administrative   47,648     50,319  
             
        106,055     107,021  
             
             
    OPERATING PROFIT   57,654     67,818  
             
FINANCING AND OTHER INCOME (EXPENSE), NET   (847 )   1,247  
             
    PROFIT BEFORE INCOME TAX   56,807     69,065  
             
INCOME TAX EXPENSE, NET   (3,576 )   (588 )
             
    NET PROFIT   53,231     68,477  
             
Net loss (income) attributable to non-controlling interest   (1,961 )   864  
             
    NET PROFIT ATTRIBUTABLE TO THE COMPANY $ 51,270   $ 69,341  
             
             
BASIC EARNINGS PER SHARE $ 0.48   $ 0.65  
             
Weighted average number of shares   107,083     106,103  
             
             
DILUTED EARNINGS PER SHARE $ 0.47   $ 0.65  
             
Weighted average number of shares   108,311     107,252  
             
             
RECONCILIATION FROM GAAP NET PROFIT TO ADJUSTED NET PROFIT:    
             
  GAAP NET PROFIT $ 51,270   $ 69,341  
    Stock based compensation   11,798     11,482  
    Amortization of acquired intangible assets   1,293     2,627  
  ADJUSTED NET PROFIT $ 64,361   $ 83,450  
             
ADJUSTED EARNINGS PER SHARE:        
             
  Basic $ 0.60   $ 0.79  
             
  Diluted $ 0.59   $ 0.78  
             

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
RECONCILIATION FROM GAAP OPERATING PROFIT TO EBITDA (UNAUDITED)
(dollars in thousands)
               
               
      Three months ended
      September 30,   June 30,   September 30,
      2020   2020   2019
               
GAAP OPERATING PROFIT $ 19,089 $ 22,127 $ 22,719
  Depreciation of fixed assets   56,131   55,175   48,355
  Stock based compensation   3,460   3,795   3,775
  Amortization of acquired intangible assets   490   493   492
               
EBITDA $ 79,170  $ 81,590 $ 75,341
               
               
      Nine months ended    
      September 30,   September 30,    
      2020   2019    
               
GAAP OPERATING PROFIT $ 57,654 $ 67,818    
  Depreciation of fixed assets   162,790   142,362    
  Stock based compensation   11,798   11,482    
  Amortization of acquired intangible assets   1,293   2,627    
               
EBITDA $ 233,535 $ 224,289    
               

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED SOURCES AND USES REPORT (UNAUDITED)
(dollars in thousands)
               
               
      Three months ended
      September 30,     June 30,     September 30,  
      2020     2020     2019  
               
CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD $ 258,793   $ 251,348   $ 405,158  
               
  Net cash provided by operating activities   68,612     66,603     72,735  
  Investments in property and equipment, net   (66,862 )   (62,537 )   (43,017 )
  Exercise of options   272     1,127     43  
  Debt repaid, net   (26,355 )   (5,000 )   (5,606 )
  Effect of Japanese Yen exchange rate change over cash balance   2,227     682     (104 )
  Investments in short-term deposits, marketable securities and other assets, net   (28,983 )   6,570     (11,573 )
               
CASH AND CASH EQUIVALENTS – END OF PERIOD $ 207,704   $ 258,793   $ 417,636  
               
               
               
      Nine months ended    
      September 30,    
      2020     2019      
               
CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD $ 355,561   $ 385,091      
               
  Net cash provided by operating activities   203,551     219,759      
  Investments in property and equipment, net   (192,306 )   (128,462 )    
  Exercise of options   1,486     440      
  Debt repaid, net   (55,552 )   (16,155 )    
  Effect of Japanese Yen exchange rate change over cash balance   2,733     2,361      
  Investments in short-term deposits, marketable securities and other assets, net   (107,769 )   (45,398 )    
               
CASH AND CASH EQUIVALENTS – END OF PERIOD $ 207,704   $ 417,636      
               

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
                             
            Nine months ended   Three months ended
            September 30,     September 30,     September 30,     June 30,     September 30,  
            2020     2019     2020     2020     2019  
                             
CASH FLOWS – OPERATING ACTIVITIES                    
                             
  Net profit for the period $ 53,231   $ 68,477   $ 15,726   $ 21,474   $ 22,354  
                             
  Adjustments to reconcile net profit for the period                    
    to net cash provided by operating activities:                    
      Income and expense items not involving cash flows:                    
        Depreciation and amortization   177,576     158,070     60,277     60,268     53,203  
        Effect of exchange rate differences on debentures   (82 )   9,300     828     3,159     3,095  
        Other expense (income), net   (332 )   (711 )   558     (876 )   (266 )
      Changes in assets and liabilities:                    
        Trade accounts receivable   10,260     30,775     11,556     (12,981 )   (496 )
        Other assets   (2,508 )   (7,733 )   (7,630 )   (1,998 )   (1,978 )
        Inventories   (10,691 )   (16,293 )   6,689     (11,209 )   (13,276 )
        Trade accounts payable   (23,249 )   (3,094 )   (10,299 )   (6,751 )   12,110  
        Deferred revenue and customers’ advances   (3,094 )   (9,471 )   (596 )   (1,927 )   4,178  
        Other current liabilities   (103 )   (8,340 )   (10,832 )   13,977     (6,494 )
        Long-term employee related liabilities   3,847     7     1,793     2,109     (32 )
        Deferred tax, net and other long-term liabilities   (1,304 )   (1,228 )   542     1,358     337  
        Net cash provided by operating activities   203,551     219,759     68,612     66,603     72,735  
                             
CASH FLOWS – INVESTING ACTIVITIES                    
  Investments in property and equipment, net   (192,306 )   (128,462 )   (66,862 )   (62,537 )   (43,017 )
  Investments in deposits, marketable securities and other assets, net   (107,769 )   (45,398 )   (28,983 )   6,570     (11,573 )
        Net cash used in investing activities   (300,075 )   (173,860 )   (95,845 )   (55,967 )   (54,590 )
                             
CASH FLOWS – FINANCING ACTIVITIES                    
                             
  Debt repaid, net   (55,552 )   (16,155 )   (26,355 )   (5,000 )   (5,606 )
  Exercise of options   1,486     440     272     1,127     43  
        Net cash used in financing activities   (54,066 )   (15,715 )   (26,083 )   (3,873 )   (5,563 )
                             
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGE   2,733     2,361     2,227     682     (104 )
                             
                             
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (147,857 )   32,545     (51,089 )   7,445     12,478  
CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD   355,561     385,091     258,793     251,348     405,158  
                             
CASH AND CASH EQUIVALENTS – END OF PERIOD $ 207,704   $ 417,636   $ 207,704   $ 258,793   $ 417,636