TSEM Tower Semiconductor Ltd

Tower Semiconductor (NASDAQ: TSEM & TASE: TSEM) reports today its results for the second quarter ended June 30, 2023.

Second Quarter of 2023 Results Overview

Revenue for the second quarter of 2023 was $357 million as compared with $356 million for the first quarter of 2023. Revenue for the second quarter of 2022 was $426 million.

Gross profit for the second quarter of 2023 was $87 million as compared with $96 million for the first quarter of 2023. Gross profit for the second quarter of 2022 was $112 million.

Operating profit for the second quarter of 2023 was $51 million, as compared with $89 million in the first quarter of 2023 that included $32 million restructuring income, net from the previously disclosed reorganization and restructure of our Japan operations during 2022. Operating profit for the second quarter of 2022 was $71 million.

Net profit for the second quarter of 2023 was $51 million, or $0.46 basic and diluted earnings per share. Net profit for the first quarter of 2023 was $71 million, or $0.65 basic and $0.64 diluted earnings per share and included the restructuring income, net from the previously disclosed reorganization and restructure of our Japan operations during 2022. Net profit in the second quarter of 2022 was $58 million, or $0.53 basic and diluted earnings per share.

Cash flow generated from operating activities in the second quarter of 2023 was $75 million as compared with $73 million in the first quarter of 2023. Investments in fixed assets were $89 million, net, for the second quarter of 2023 as compared with $105 million in the first quarter of 2023. 

During the second quarter of 2023, the Company repaid $10 million of its debt, as compared with $27 million in the first quarter of 2023.

Guidance and Conference Call

In light of the Company’s definitive agreement with Intel Corporation, as announced on February 15, 2022, the Company is not providing revenue guidance for the third quarter of 2023 and will not host an earnings conference call.

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, which may be used and/ or presented in this release and/ or prior earnings related filings and/ or in related public disclosures or filings with respect to the financial statements and/ or results of the Company, which we may describe as adjusted financial measures and/ or reconciled 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 the following: (1) amortization of acquired intangible assets, (2) compensation expenses in respect of equity grants to directors, officers, and employees and (3) restructuring income, net, which includes income, net of cost associated with the cessation of operations of the Arai manufacturing factory in Japan which occurred during 2022. These adjusted financial measures should be evaluated in conjunction with, and are not a substitute for, GAAP financial measures. The tables may 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 prior earnings related filings and/ or in related public disclosures or filings with respect to the financial statements and/ or results of the Company, as well as may be included and calculated in the tables herein, the term Earnings Before Interest Tax Depreciation and Amortization which we define as EBITDA consists of operating profit in accordance with GAAP, excluding (i) depreciation expenses, which include depreciation recorded in cost of revenues and in operating cost and expenses lines (e.g, research and development related equipment and/ or fixed other assets depreciation), (ii) stock-based compensation expense, (iii) amortization of acquired intangible assets and (iv) restructuring income, net in relation to the Arai manufacturing factory in Japan, as described in (3) above. EBITDA is reconciled in the tables below and/or in prior earnings-related filings and/ or in related public disclosures or filings with respect to the financial statements and/ or results of the Company 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 prior earnings-related filings 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 may be used and/ or presented in this release and/ or prior earnings-related filings 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 prior earnings related filings 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 $75 million, $73 million and $138 million for the three months periods ended June 30, 2023, March 31, 2023 and June 30, 2022, respectively( less cash used for investments in property and equipment, net (in the amounts of $89 million, $105 million and $49 million for the three months periods ended June 30, 2023, March 31, 2023 and June 30, 2022, 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 leading foundry of high value analog semiconductor 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 process transfer services including development, transfer, and optimization, to IDMs and fabless companies. To provide multi-fab sourcing and extended capacity for its customers, Tower Semiconductor owns two manufacturing facilities in Israel (150mm and 200mm), two in the U.S. (200mm), two facilities in Japan (200mm and 300mm) which it owns through its 51% holdings in TPSCo and is sharing a 300mm manufacturing facility being established in Italy by STMicroelectronics. For more information, please visit: www.towersemi.com

CONTACTS: Noit Levy | Investor Relations | +972 74 737 7556 | noitle@towersemi.com

This press release, including other projections with respect to our business and activities, 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, (x) pending litigation, (xi) new customer engagements, qualification and production ramp-up at our facilities,(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 other fundraising activities to enable the service of our debt and/or other liabilities and/or for strategic opportunities, including to fund Agrate fab’s significant 300mm capacity investments, in addition to other previously announced capacity expansion plans , and the possible unavailability of such financing and/ or the availability of such financing on 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 in order to enable us to maintain our profitability , (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 that caused him to request a judicial declaration that there was a material non-curable breach of the lease and that he would be entitled to terminate the lease (we do not agree and are disputing these claims), (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, including risks and uncertainties associated with Agrate fab establishment project, its qualification schedule, technology, equipment and process qualification and production facility ramp-up, customer engagements, cost structure and investment amounts and other terms, which may require additional funding to cover its significant capacity investment needs and other payments, the availability of which funding cannot be assured on favorable terms, if at all, (xxxvi) potential impact, in addition to the aforementioned restructuring costs and future additional such costs, incurred by TPSCo and the Company due to the purchase in 2020 of 49% of TPSCo by NTCJ (previously named PSCS) from Panasonic and due to the cessation of operations of Arai manufacturing factory in Japan, which manufactured products solely for NTCJ through June 2022 and did not serve Tower’s or TPSCo’s foundry customers, (xxxvii) industry and market impact due to pandemics and potential impact on our business, operational continuity, supply chain, revenue and profitability, (xxxviii) potential security, cyber and privacy breaches, (xxxix) risks associated with the transaction announced on February 15, 2022 under which Intel Corporation is to acquire the Company, including the timely receipt of certain governmental and other regulatory approvals, the potential for regulatory authorities to require divestitures, behavioral remedies or other concessions in order to obtain their approval of the proposed transaction, the occurrence of any event, change or other circumstance that could give rise to a termination of the merger agreement, the effect of the announcement or pendency of the transaction on business relationships, operating results and business generally, delays, disruptions or increased costs due to the integration process with the acquirer, litigation related to or resulting from the transaction, difficulties to retain key personnel and customers, diverting management’s attention from the ongoing business operations, potential negative reactions or changes to business relationships resulting from the announcement or completion of the transaction, and (xxxx) business interruption due to fire, earthquake and other natural disasters, the security situation in Israel, global trade “war”, pandemics , including impact on global supply chain to the fabs and from the fabs, power interruptions and other events beyond our control.

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)
		June 30,				March 31,				December 31,
		2023				2023				2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	318,195			$	304,934			$	340,759
Short-term deposits		419,528				469,284				495,359
Marketable securities		175,872				171,747				169,694
Trade accounts receivable		163,293				144,195				152,935
Inventories		330,819				358,715				302,108
Other current assets		32,396				35,416				34,319
Total current assets		1,440,103				1,484,291				1,495,174
PROPERTY AND EQUIPMENT, NET		1,018,636				1,009,632				962,258
GOODWILL AND OTHER INTANGIBLE ASSETS, NET		13,049				13,540				14,031
DEFERRED TAX AND OTHER LONG-TERM ASSETS, NET		62,288				69,623				76,145
TOTAL ASSETS		$	2,534,076			$	2,577,086			$	2,547,608
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt		$	41,300			$	42,224			$	62,275
Trade accounts payable		154,507				191,006				150,930
Deferred revenue and customers' advances		22,402				30,268				38,911
Other current liabilities		83,631				90,637				135,272
Total current liabilities		301,840				354,135				387,388
LONG-TERM DEBT		178,865				201,445				210,069
LONG-TERM CUSTOMERS' ADVANCES		31,209				34,066				40,893
DEFERRED TAX AND OTHER LONG-TERM LIABILITIES		11,057				11,188				20,717
TOTAL LIABILITIES		522,971				600,834				659,067
TOTAL SHAREHOLDERS' EQUITY		2,011,105				1,976,252				1,888,541
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	2,534,076			$	2,577,086			$	2,547,608

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars and share count in thousands, except per share data)
		Three months ended
		June 30,				March 31,				June 30,
		2023				2023				2022
REVENUES		$	357,191			$	355,611			$	426,168
COST OF REVENUES		270,674				259,894				313,728
GROSS PROFIT		86,517				95,717				112,440
OPERATING COSTS AND EXPENSES:
Research and development		19,452				19,331				20,481
Marketing, general and administrative		17,387				18,629				21,285
Restructuring income, net *		(851		)		(31,655		)		--
		35,988				6,305				41,766
OPERATING PROFIT		50,529				89,412				70,674
FINANCING AND OTHER INCOME (EXPENSE), NET		3,924				6,997				(8,162		)
PROFIT BEFORE INCOME TAX		54,453				96,409				62,512
INCOME TAX EXPENSE, NET		(5,747		)		(15,041		)		(4,339		)
NET PROFIT		48,706				81,368				58,173
Net loss (income) attributable to non-controlling interest		2,484				(9,966		)		(96		)
NET PROFIT ATTRIBUTABLE TO THE COMPANY		$	51,190			$	71,402			$	58,077
BASIC EARNINGS PER SHARE		$	0.46			$	0.65			$	0.53
Weighted average number of shares		110,088				109,961				109,138
DILUTED EARNINGS PER SHARE		$	0.46			$	0.64			$	0.53
Weighted average number of shares		111,234				111,071				110,561
* Restructuring income, net resulted from the previously disclosed reorganization and restructure of our Japan operations during 2022.

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars and share count in thousands, except per share data)
		Six months ended
		June 30,
		2023				2022
REVENUES		$	712,802			$	847,300
COST OF REVENUES		530,568				630,229
GROSS PROFIT		182,234				217,071
OPERATING COSTS AND EXPENSES:
Research and development		38,783				40,799
Marketing, general and administrative		36,016				42,538
Restructuring income, net *		(32,506		)		--
		42,293				83,337
OPERATING PROFIT		139,941				133,734
FINANCING AND OTHER INCOME (EXPENSE), NET		10,921				(10,295		)
PROFIT BEFORE INCOME TAX		150,862				123,439
INCOME TAX EXPENSE, NET		(20,788		)		(9,492		)
NET PROFIT		130,074				113,947
Net income attributable to non-controlling interest		(7,482		)		(1,837)
NET PROFIT ATTRIBUTABLE TO THE COMPANY		$	122,592			$	112,110
BASIC EARNINGS PER SHARE		$	1.11			$	1.03
Weighted average number of shares		110,025				109,037
DILUTED EARNINGS PER SHARE		$	1.10			$	1.01
Weighted average number of shares		111,153				110,561
* Restructuring income, net resulted from the previously disclosed reorganization and restructure of our Japan operations during 2022.

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED SOURCES AND USES REPORT (UNAUDITED)
(dollars in thousands)
		Three months ended
		June 30,				March 31,				June 30,
		2023				2023				2022
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		$	304,934			$	340,759			$	203,484
Net cash provided by operating activities		75,494				72,727				138,097
Investments in property and equipment, net		(89,433		)		(105,245)				(49,377		)
Debt repaid and others, net		(10,093		)		(28,796)				(8,211		)
Proceeds from an investment in a subsidiary		--				1,932				--
Effect of Japanese Yen exchange rate change over cash balance		(5,322		)		(637)				(7,682		)
Investments in short-term deposits, marketable securities and other assets, net		42,615				24,194				(65,134		)
CASH AND CASH EQUIVALENTS - END OF PERIOD		$	318,195			$	304,934			$	211,177

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
		Three months ended
		June 30,				March 31,				June 30,
		2023				2023				2022
CASH FLOWS - OPERATING ACTIVITIES
Net profit for the period		$	48,706			$	81,368			$	58,173
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		63,579				62,387				67,007
Effect of exchange rate differences and fair value adjustment		3,102				(926		)		2,276
Other expense (income), net		(149		)		815				560
Changes in assets and liabilities:
Trade accounts receivable		(21,241		)		7,413				3,578
Other assets		2,114				(1,138		)		(3,355		)
Inventories		16,315				(57,420		)		(10,630		)
Trade accounts payable		(24,712		)		44,542				22,415
Deferred revenue and customers' advances		(10,723		)		(15,470		)		(14,031		)
Other current liabilities		(5,479		)		(45,053		)		10,974
Long-term employee related liabilities		267				371				26
Deferred tax, net and other long-term liabilities		3,715				(4,162		)		1,104
Net cash provided by operating activities		75,494				72,727				138,097
CASH FLOWS - INVESTING ACTIVITIES
Investments in property and equipment, net		(89,433		)		(105,245		)		(49,377		)
Investments in deposits, marketable securities and other assets, net		42,615				24,194				(65,134		)
Net cash used in investing activities		(46,818		)		(81,051		)		(114,511		)
CASH FLOWS - FINANCING ACTIVITIES
Debt repaid and others, net		(10,093		)		(28,796		)		(8,211		)
Proceeds from an investment in a subsidiary		--				1,932				--
Net cash used in financing activities		(10,093		)		(26,864		)		(8,211		)
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGE		(5,322		)		(637		)		(7,682		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		13,261				(35,825		)		7,693
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		304,934				340,759				203,484
CASH AND CASH EQUIVALENTS - END OF PERIOD		$	318,195			$	304,934			$	211,177