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