TowerJazz Reports Results for the First Quarter of 2018 and Second Quarter Guidance Growth

May 7, 2018 at 6:00 AM EDT

MIGDAL HAEMEK, Israel, May 07, 2018 (GLOBE NEWSWIRE) -- TowerJazz (NASDAQ:TSEM) (TASE:TSEM) reported today its financial results for the first quarter ended March 31, 2018.

Highlights:

  • Revenues of $313 million resulted in EBITDA of $84 million and net profit of $26 million;
  • Cash from operations of $75 million and free cash flow of $35 million;
  • Record net cash of $247 million;
  • Record Shareholders equity of $1.07 billion;
  • Received upgraded S&P rating from “ilA+ stable” to “ilAA- stable”;
  • Forecast second quarter revenue growth of 7% sequentially, with a mid-range guidance of $335 million.

Business Outlook
TowerJazz expects revenues for the second quarter of 2018 ending June 30, 2018 to be $335 million, with an upward or downward range of 5%, representing a sequential growth of 7%.

Mr. Russell Ellwanger, Chief Executive Officer of TowerJazz, commented, “This past quarter we formally began projects and/ or were informed of wins for several varied industry defining projects with respective customer market leaders. The quarter, as forecasted, was impacted by seasonality and some activities, moving our offering to higher value richer mixes. Present customer forecasts show continued quarter over quarter growth throughout 2018, with a fourth quarter demonstrating over 25% organic business unit growth against the first quarter, and with commensurate bottom line achievements.”

First Quarter 2018 Results
Revenues for the first quarter of 2018 were $313 million, seasonally down, reflecting a 5% decrease as compared to $330 million in the first quarter of 2017.

Gross and operating profits for the first quarter of 2018 were $66 million and $32 million, respectively, as compared to $89 million and $54 million, respectively, in the fourth quarter of 2017, and as compared to $85 million and $53 million, respectively, in the first quarter of 2017. This represents quarter over quarter gross and operating margins decrease of 4 and 5 percentage points, respectively, and year over year decrease of 5 and 6 percentage points, respectively.  

EBITDA for the first quarter of 2018 was $84 million, as compared to $101 million, in the first quarter of 2017.

Net profit for the first quarter of 2018 was $26 million, or $0.26 diluted earnings per share, as compared to $46 million, or $0.45 diluted earnings per share in the first quarter of 2017.

Free cash flow for the quarter was $35 million, with $75 million cash flow from operations and $40 million investments in fixed assets, net. The other main cash activities during the first quarter of 2018 were: $15 million investment in marketable securities and other investments; $7 million loan repayment and a positive $5 million item due to the effect of the Japanese Yen exchange rate on the cash balance.

Cash (including marketable securities), net of gross debt, as of March 31, 2018, totaled to a record of $247 million as compared to net cash of $226 million as of December 31, 2017. 

Shareholders' equity as of March 31, 2018 was a record of $1.07 billion, as compared to $1.03 billion as of December 31, 2017.

Rating
On April 30, 2018, the Company received an upgraded rating from Standard & Poor’s Ma’alot (an Israeli rating company which is fully owned by S&P Global Ratings). Its previous rating was “ilA+ with a stable horizon” and the new upgraded rating is “ilAA-, with a stable horizon”.

Teleconference and Webcast
TowerJazz will host an investor conference call today, May 7, 2018, 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 first quarter 2018 and its outlook.

This call will be webcast and can be accessed via TowerJazz’s website at www.towerjazz.com, or by calling 1-888-668-9141 (U.S. Toll-Free), 03-918-0609 (Israel), +972-3-918-0609 (International).  For those who are not available to listen to the live broadcast, the call will be archived on TowerJazz’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, which we describe in this release as “adjusted” financial measures, is 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 more of the following: (1) amortization of acquired intangible assets; (2) compensation expenses in respect of equity grants to directors, officers and employees; (3) non-recurring items related to long-term investments, (4) income tax benefit resulted from Israeli deferred tax asset realization following valuation allowance release; and (5) income tax benefit related to U.S. tax reform. 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, 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 interest and other financing expense, net, other income, 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 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, is comprised of cash, cash equivalents, short-term deposits and marketable securities (in the amounts of $590 million and $560 million as of March 31, 2018 and December 31, 2017, respectively) less the outstanding principal amount of bank loans (in the amounts of $138 million as of March 31, 2018 and December 31, 2017), the outstanding principal amount of capital leases (in the amounts of $25 million and $16 million as of March 31, 2018 and December 31, 2017) and the outstanding principal amount of debentures (in the amount of $180 million as of March 31, 2018 and December 31, 2017). 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. In addition, the term Free Cash Flow, as used and/ or presented in this release, is calculated to be cash from operating activities (in the amounts of $75 million, $85 million and $82 million for the three months periods ended March 31, 2018, December 31, 2017 and March 31, 2017, respectively) less cash for investments in property and equipment, net (in the amounts of $40 million, $41 million and $40 million for the three months periods ended March 31, 2018, December 31, 2017 and March 31, 2017, 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 TowerJazz
Tower Semiconductor Ltd. (NASDAQ:TSEM) (TASE:TSEM) and its subsidiaries operate collectively under the brand name TowerJazz, the global specialty foundry leader. TowerJazz manufactures next-generation integrated circuits (ICs) in growing markets such as consumer, industrial, automotive, medical and aerospace and defense. TowerJazz’s advanced technology is comprised of a broad range of customizable process platforms such as: SiGe, BiCMOS, mixed-signal/CMOS, RF CMOS, CMOS image sensor, integrated power management (BCD and 700V), and MEMS. TowerJazz 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 that need to expand capacity. To provide multi-fab sourcing and extended capacity for its customers, TowerJazz 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). For more information, please visit www.towerjazz.com.

CONTACTS:
Noit Levy-Karoubi | TowerJazz | +972 4 604 7066 | Noit.levi@towerjazz.com
GK Investor Relations | Gavriel Frohwein, (646) 688 3559 | towerjazz@gkir.com

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 March 31, 2018 we are in compliance with all such covenants included in our banks’ agreements, bond G indenture and others), (x) obtaining new customer engagements, products qualification and production ramp-up of the TPSCo facilities and our San Antonio facility, (xi) the lease of the fab 3 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, (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) retention of key employees and recruitment and retention of skilled qualified personnel, (xxxi) 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, (xxxii) 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, (xxxiii) meeting regulatory requirements worldwide, including environmental and governmental regulations, (xxxiv) pending litigation, including the shareholder class actions that were filed against the Company, certain officers, its directors and/or its external auditor in the US and Israel, following a short sell thesis report issued by a short-selling focused firm, which has been dismissed and closed in the US as well as dismissed by the Israeli district court, on which the Israeli plaintiff has recently appealed to the Israeli supreme court, (xxxv) realization of the fab establishment project in China, including obtaining required project funding, negotiation and closure of definitive agreements in relation theretoto, licensing of technologies, receipt of payment milestones to Tower, qualification and ramp of process flows and products to enable mass production for customers and attain revenue to levels that would cover the facility’s fixed costs, and (xxxvi) 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
(dollars in thousands)
             
             
    March 31,   December 31,   March 31,
    2018   2017   2017
    (unaudited)       (unaudited)
ASSETS              
             
  CURRENT ASSETS              
    Cash, cash equivalents and short-term deposits $ 464,661 $ 445,961 $ 432,113
    Marketable securities     125,105   113,874     -- 
    Trade accounts receivable   144,352   149,666   133,539
    Inventories     148,367   143,315   140,734
    Other current assets     19,175   21,516   27,235
      Total current assets     901,660   874,332   733,621
             
  LONG-TERM INVESTMENTS   28,798   26,073   26,661
             
  PROPERTY AND EQUIPMENT, NET   652,816   635,124   629,554
             
  INTANGIBLE ASSETS, NET   18,479   19,841   26,164
             
  GOODWILL     7,000   7,000   7,000
             
  DEFERRED TAX AND OTHER LONG-TERM ASSETS, NET   110,771   111,269   4,403
             
      TOTAL ASSETS   $ 1,719,524 $ 1,673,639 $ 1,427,403
             
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
             
  CURRENT LIABILITIES              
    Short-term debt   $ 114,763 $ 105,958 $ 43,331
    Trade accounts payable     116,496   115,347   104,084
    Deferred revenue and customers' advances   14,310   14,338   24,945
    Other current liabilities     64,011   66,730   65,469
      Total current liabilities     309,580   302,373   237,829
             
  LONG-TERM DEBT     229,013   228,723   303,152
             
  LONG-TERM CUSTOMERS' ADVANCES   31,224   31,908   34,369
             
  LONG-TERM EMPLOYEE RELATED LIABILITIES   14,517   14,662   14,447
             
  DEFERRED TAX LIABILITY AND OTHER LONG-TERM LIABILITIES   67,435   66,267   91,715
             
      TOTAL LIABILITIES     651,769   643,933   681,512
             
      TOTAL SHAREHOLDERS' EQUITY   1,067,755   1,029,706   745,891
             
        TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,719,524 $ 1,673,639 $ 1,427,403
             

 

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars and share count in thousands, except per share data)
 
 
  Three months ended
  March 31,   December 31,   March 31,
  2018
  2017
  2017
             
REVENUES
$ 312,710   $ 357,614   $ 330,080  
             
COST OF REVENUES
  246,545     268,256     245,312  
             
    GROSS PROFIT
  66,165     89,358     84,768  
             
OPERATING COSTS AND EXPENSES:            
             
  Research and development   18,266     18,370     15,768  
  Marketing, general and administrative   15,994     16,502     16,237  
             
    34,260     34,872     32,005  
             
             
    OPERATING PROFIT   31,905     54,486     52,763  
             
INTEREST EXPENSE, NET   (598 )   (1,783 )   (2,211 )
             
OTHER FINANCING EXPENSE, NET   (3,193 )   (2,270 )   (2,018 )
             
OTHER INCOME (EXPENSE), NET   22     (3,027 )   511  
             
    PROFIT BEFORE INCOME TAX   28,136     47,406     49,045  
             
INCOME TAX BENEFIT (EXPENSE), NET   (955 )   101,236  (a)   (1,999 )
             
    PROFIT BEFORE NON CONTROLLING INTEREST    27,181     148,642  (a)   47,046  
             
NON CONTROLLING INTEREST   (1,063 )   (1,431 )   (1,537 )
             
    NET PROFIT
$ 26,118   $ 147,211  (a) $ 45,509  
             
             
BASIC EARNINGSPER SHARE $ 0.27   $ 1.50  (a) $ 0.48  
             
Weighted average number of shares     98,495       98,312       93,900  
             
             
DILUTED EARNINGS PER SHARE $ 0.26   $ 1.40  (a) $ 0.45  
             
Net profit used for diluted earnings per share $ 26,118   $ 149,502  (a) $ 47,666  
             
Weighted average number of shares   101,112     106,776     104,915  
             
 
(a) Three months ended December 31, 2017 included $82,370 Israeli deferred tax asset realization following valuation allowance release and $12,970 income tax benefit related to U.S. tax reform.
   

 

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
 RECONCILIATION OF CERTAIN FINANCIAL DATA (UNAUDITED)
(dollars and share count in thousands, except per share data)
 
    Three months ended
    March 31,    December 31,   March 31, 
    2018   2017
  2017
             
RECONCILIATION FROM GAAP NET PROFIT TO ADJUSTED NET PROFIT:            
             
  GAAP NET PROFIT
$ 26,118 $ 147,211   $ 45,509
    Stock based compensation    3,367   3,481     2,098
    Amortization of acquired intangible assets    1,661   1,564     2,336
    Non-recurring items related to long term investments      --    3,009       -- 
    Income tax benefit resulted from Israeli deferred tax asset realization following valuation allowance release, see (a) above     --    (82,370 )     -- 
    Income tax benefit related to U.S. tax reform, see (a) above     --    (12,970 )     -- 
             
  ADJUSTED NET PROFIT $ 31,146 $ 59,925   $ 49,943
             
             
  ADJUSTED NET PROFIT PER SHARE:            
    Basic
$ 0.32 $ 0.61   $ 0.53
    Diluted
$ 0.31 $ 0.58   $ 0.50
    Fully diluted
$ 0.31 $ 0.58   $ 0.49
             
  ADJUSTED NET PROFIT USED TO CALCULATE PER SHARE DATA:            
    Basic
$   31,146 $   59,925   $   49,943
    Diluted
$   31,146 $   62,216   $   52,100
    Fully diluted
$   33,486 $   62,216   $   52,100
             
  NUMBER OF SHARES AND OTHER SECURITIES USED TO CALCULATE PER SHARE DATA:        
    Basic
    98,495     98,312       93,900
    Diluted
    101,112     106,776       104,915
    Fully diluted
    107,717     107,721       107,245
             
             
EBITDA CALCULATION:            
             
  GAAP OPERATING PROFIT  $ 31,905 $ 54,486   $ 52,763
    Depreciation of fixed assets    47,357   47,741     43,819
    Stock based compensation   3,367   3,481     2,098
    Amortization of acquired intangible assets   1,661   1,564     2,336
             
  EBITDA
$ 84,290 $ 107,272   $ 101,016
             

 

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED SOURCES AND USES REPORT (UNAUDITED)
(dollars in thousands)
                   
                   
      Three months ended
      March 31,     December 31,     March 31,
      2018
    2017
    2017
                   
Cash, cash equivalents  and short-term deposits - beginning of period $ 445,961     $ 480,407     $ 389,377  
                   
  Cash from operations   75,001       85,285       82,140  
  Investments in property and equipment, net   (40,047 )     (41,349 )     (40,348 )
  Exercise of warrants and options, net   658       3,278       12,756  
  Debt repaid   (6,656 )     (16,863 )     (11,805 )
  Effect of Japanese Yen exchange rate change over cash balance   4,707       70       4,371  
  TPSCo dividend to Panasonic     --          --        (4,378 )
  Investments in marketable securities and others, net   (14,963 )     (64,867 )       --   
                   
Cash, cash equivalents and short-term deposits - end of period $ 464,661     $ 445,961     $ 432,113  
                   
Free Cash Flow $ 34,954     $ 43,936     $ 41,792  
                   

 

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
             
    Three months ended
    March 31,   December 31,   March 31,
    2018
  2017
  2017
             
CASH FLOWS - OPERATING ACTIVITIES            
             
  Net profit for the period $ 27,181   $ 148,642   $ 47,046  
             
  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   53,977     51,310     49,698  
        Effect of indexation, translation and fair value measurement on debt   (1,740 )   2,281     6,888  
        Other expense (income), net   (22 )   3,027     (511 )
      Changes in assets and liabilities:            
        Trade accounts receivable   8,089     788     9,529  
        Other current assets
  3,370     445     (4,439 )
        Inventories   (2,692 )   92     (1,421 )
        Trade accounts payable   (6,313 )   (2,786 )   (4,128 )
        Deferred revenue and customers' advances    (712 )   (17,882 )   (8,735 )
        Other current liabilities   (4,219 )   1,765     (9,090 )
        Long-term employee related liabilities   (387 )   (2,482 )   (257 )
        Deferred tax, net    (1,531 )   (99,915 )   (2,440 )
          Net cash provided by operating activities   75,001     85,285     82,140  
             
CASH FLOWS - INVESTING ACTIVITIES            
  Investments in property and equipment, net   (40,047 )   (41,349 )   (40,348 )
  Investments in marketable securities and others, net   (14,963 )   (64,867 )   (5,118 )
          Net cash used in investing activities   (55,010 )   (106,216 )   (45,466 )
             
CASH FLOWS - FINANCING ACTIVITIES            
             
  Debt repaid   (6,656 )   (16,863 )   (11,805 )
  Exercise of warrants and options, net   658     3,278     12,756  
  Dividend payment to Panasonic
  --      --      (4,378 )
          Net cash used in financing activities   (5,998 )   (13,585 )   (3,427 )
             
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGE   4,707     70     4,371  
             
             
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
  18,700     (34,446 )   37,618  
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
  445,961     480,407     355,284  
             
CASH AND CASH EQUIVALENTS - END OF PERIOD   464,661     445,961     392,902  
             
  Short-term deposits   --      --      39,211  
             
CASH, CASH EQUIVALENTS AND SHORT-TERM DEPOSITS - END OF PERIOD
$ 464,661   $ 445,961   $ 432,113  
             

Source: Tower Semiconductor