TowerJazz Announces Second Quarter 2019 Results with Strong Organic Growth and Guides Third Quarter Revenue Increase with Continued Organic Growth

Announcing 300mm fab capacity expansion plan to fulfill increased customers’ demand

MIGDAL HAEMEK, Israel, July 29, 2019 (GLOBE NEWSWIRE) -- TowerJazz (NASDAQ: TSEM & TASE: TSEM) reported today its results for the second quarter ended June 30, 2019.

Second Quarter Results Overview
Revenues for the second quarter of 2019 were $306 million, reflecting 11% quarter over quarter organic growth (defined as total revenue excluding revenues from Panasonic in the TPSCo fabs and revenues from Maxim in the San Antonio fab). This organic growth of $20 million is offsetting to a great extent the $22 million Panasonic revenue reduction per the revised terms of the previously announced Panasonic contract extension and a Maxim revenue reduction per the San Antonio fab acquisition agreement.

Gross and operating profits for the second quarter of 2019 were $53 million and $18 million, respectively, as compared to $63 million and $27 million, respectively, in the prior quarter. The 11% organic revenue growth and efficiencies enabled the company to mitigate approximately 55% and 60% of the full impact from Panasonic revenue reduction over the gross and operating profits, respectively.  

EBITDA for the second quarter of 2019 was $70 million, as compared to $79 million in the first quarter of 2019, also reflecting approximately 60% mitigation of the above described $22 million impact.

Net profit for the second quarter of 2019 was $21 million, or $0.20 diluted earnings per share, as compared to net profit of $26 million or $0.25 diluted earnings per share in the prior quarter.

Free cash flow for the quarter was $28 million, with $72 million cash flow from operations and $44 million investments in fixed assets, net. The other main cash activities during the second quarter of 2019 were $27 million investment in short-term deposit and marketable securities and $7 million debt repayments.    

Cash and cash equivalents including short term deposits and marketable securities, net of short and long-term debt, as of June 30, 2019, is $378 million as compared to $374 million as of December 31, 2018. 

Shareholders' equity as of June 30, 2019 was a record $1.29 billion, as compared to $1.24 billion as of December 31, 2018.

Capacity Expansion Plan
Following substantial increase in TPSCo’s 300mm foundry utilization and a forecasted customer demand exceeding the current capacity capabilities, TowerJazz is announcing a capacity expansion plan for the Uozu fab in Japan, adding capacity for the highly differentiated 300mm RF SOI, 65nm BCD Power Management and CMOS image sensor platforms and will allocate an amount of about $100 million to this plan. Capacity is targeted to be installed during the first half of 2020.

Business Outlook
TowerJazz expects revenues for the third quarter of 2019 to grow to approximately $312 million, with an upward or downward range of 5%, representing 6% quarter over quarter organic revenue growth.

Mr. Russell Ellwanger, Chief Executive Officer of TowerJazz, commented, “We are pleased with our second quarter results, having achieved strong organic growth and guiding further increased organic and total revenues growth for the third quarter. We are executing on exciting opportunities within all of our business units, many of which segue into new and large served markets. Of particular interest, our 300mm activities have resulted in strong demand and forecasted excess demand for which we are now investing to fulfill.”   

Teleconference and Webcast

TowerJazz will host an investor conference call today, Monday, July 29, 2019, at 10:00a.m. Eastern time (9:00a.m. Central time, 8:00a.m. Mountain time, 7:00a.m. Pacific time and 5:00p.m. Israel time) to discuss the Company’s financial results for the second quarter of 2019 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 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, 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 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 Free Cash Flow, as used and/ or presented in this release, is calculated to be cash from operating activities (in the amounts of $72 million, $75 million and $77 million for the three months periods ended June 30, 2019, March 31, 2019 and June 30, 2018, respectively) less cash for investments in property and equipment, net (in the amounts of $44 million, $42 million and $40 million for the three months periods ended June 30, 2019, March 31, 2019 and June 30, 2018, 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. With regards to our balance sheet as of June 30, 2019, as disclosed in Note 2Y to our annual financial statements for the year ended December 31, 2018, we implemented ASU 2016-02 “Leases” effective January 1, 2019 with regards to lease right-of-use assets and lease liabilities, which implementation resulted in our lease contracts value presentation under property and equipment, net, short-term debt and long-term debt as of June 30, 2019. In addition, short-term debt as of June 30, 2019 includes $18 million of the first installment payment scheduled in March 2020 for series G bonds.

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 | TowerJazz | +972 4 604 7066 | Noit.levi@towerjazz.com
GK Investor Relations | Gavriel Frohwein, +1 (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 June 30, 2019 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, (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) negotiation and closure of a definitive agreement in relation to fab establishment in China, as well as project implementation through required outside funding and resources and receipt of future proceeds therefrom; and (xxxv) 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)
      
      
  June 30,  December 31,
  2019  2018
  (unaudited)   
      
ASSETS     
      
CURRENT ASSETS     
Cash and cash equivalents$405,158  $385,091
Short-term deposits 147,032   120,079
Marketable securities 146,893   135,850
Trade accounts receivable 123,789   153,409
Inventories 174,806   170,778
Other current assets 22,374   22,752
Total current assets 1,020,052   987,959
      
LONG-TERM INVESTMENTS 36,874   35,945
      
PROPERTY AND EQUIPMENT, NET 707,122   657,234
      
INTANGIBLE ASSETS, NET 11,279   13,435
      
GOODWILL 7,000   7,000
      
DEFERRED TAX AND OTHER LONG-TERM ASSETS, NET89,171   88,404
      
TOTAL ASSETS$1,871,498  $1,789,977
      
      
LIABILITIES AND SHAREHOLDERS' EQUITY     
      
CURRENT LIABILITIES     
Short-term debt$45,173  $10,814
Trade accounts payable 92,747   104,329
Deferred revenue and customers' advances 7,975   20,711
Other current liabilities 65,904   67,867
Total current liabilities 211,799   203,721
      
LONG-TERM DEBT 275,914   256,669
      
LONG-TERM CUSTOMERS' ADVANCES 27,230   28,131
      
LONG-TERM EMPLOYEE RELATED LIABILITIES 14,295   13,898
      
DEFERRED TAX AND OTHER LONG-TERM LIABILITIES 47,403   51,353
      
TOTAL LIABILITIES 576,641   553,772
      
TOTAL SHAREHOLDERS' EQUITY 1,294,857   1,236,205
      
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$1,871,498  $1,789,977
      

 

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,
  2019  2019  2018
         
REVENUES$306,064  $310,107   $335,138  
         
COST OF REVENUES 252,657   246,956    256,610  
         
GROSS PROFIT 53,407   63,151    78,528  
         
OPERATING COSTS AND EXPENSES:        
         
Research and development 18,812   19,168    18,173  
Marketing, general and administrative 16,838   16,641    16,115  
         
  35,650   35,809    34,288  
         
         
OPERATING PROFIT 17,757   27,342    44,240  
         
FINANCING AND OTHER INCOME (EXPENSE), NET 947   725    (5,453)
         
PROFIT BEFORE INCOME TAX 18,704   28,067    38,787  
         
INCOME TAX BENEFIT (EXPENSE), NET 1,018   (1,667)  (2,778)
         
PROFIT BEFORE NON CONTROLLING INTEREST  19,722   26,400    36,009  
         
NON CONTROLLING INTEREST 1,214   (184)  1,733  
         
NET PROFIT$20,936  $26,216   $37,742  
         
         
BASIC EARNINGS PER SHARE$0.20  $0.25   $0.38  
         
Weighted average number of shares   106,321     105,331      98,888  
         
         
DILUTED EARNINGS PER SHARE$0.20  $0.25   $0.37  
         
Net profit used for diluted earnings per share$20,936  $26,216   $37,742  
         
Weighted average number of shares 107,178   106,972    101,066  
         
 
RECONCILIATION FROM GAAP NET PROFIT TO ADJUSTED NET PROFIT:      
         
GAAP NET PROFIT:$20,936  $26,216   $37,742  
         
Stock based compensation  3,884   3,823    2,678  
Amortization of acquired intangible assets  494   1,641    1,652  
ADJUSTED NET PROFIT$25,314  $31,680   $42,072  
         
ADJUSTED EARNINGS PER SHARE:        
         
Basic$0.24  $0.30   $0.43  
Diluted$0.24  $0.30   $0.42  
         

 

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,
  2019   2018 
      
REVENUES$616,171   $647,848  
      
COST OF REVENUES 499,613    503,155  
      
GROSS PROFIT 116,558    144,693  
      
OPERATING COSTS AND EXPENSES:     
      
Research and development 37,980    36,439  
Marketing, general and administrative 33,479    32,109  
      
  71,459    68,548  
      
      
OPERATING PROFIT 45,099    76,145  
      
FINANCING AND OTHER INCOME (EXPENSE), NET 1,672    (9,222)
      
PROFIT BEFORE INCOME TAX 46,771    66,923  
      
INCOME TAX EXPENSE, NET (649)  (3,733)
      
PROFIT BEFORE NON CONTROLLING INTEREST  46,122    63,190  
      
NON CONTROLLING INTEREST 1,030    670  
      
NET PROFIT$47,152   $63,860  
      
      
BASIC EARNINGS PER SHARE$0.45   $0.65  
      
Weighted average number of shares   105,829      98,693  
      
      
DILUTED EARNINGS PER SHARE$0.44   $0.63  
      
Net profit used for diluted earnings per share$47,152   $63,860  
      
Weighted average number of shares 107,078    101,090  
      
      
RECONCILIATION FROM GAAP NET PROFIT TO ADJUSTED NET PROFIT:   
      
GAAP NET PROFIT:$47,152   $63,860  
      
Stock based compensation  7,707    6,045  
Amortization of acquired intangible assets  2,135    3,313  
ADJUSTED NET PROFIT$56,994   $73,218  
      
ADJUSTED EARNINGS PER SHARE:     
      
Basic$0.54   $0.74  
Diluted$0.53   $0.72  
      

 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
RECONCILIATION FROM GAAP OPERATING PROFIT TO EBITDA (UNAUDITED)
(dollars in thousands)
         
  Three months ended
  June 30,  March 31,   June 30,
  2019  2019  2018
         
GAAP OPERATING PROFIT $17,757  $27,342  $44,240
Depreciation of fixed assets  47,966   46,041   46,978
Stock based compensation 3,884   3,823   2,678
Amortization of acquired intangible assets 494   1,641   1,652
         
EBITDA$70,101  $78,847  $95,548
         

 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED SOURCES AND USES REPORT (UNAUDITED)
(dollars in thousands)
         
         
  Three months ended
  June 30,  March 31,  June 30,
  2019   2019   2018
         
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD$408,098   $385,091   $464,661  
         
Net cash provided by operating activities 72,156    74,868    76,929  
Investments in property and equipment, net (43,727)  (41,718)  (40,148)
Exercise of options, net   --     397    26  
Debt received (repaid), net (7,475)  (3,074)  3,809  
Effect of Japanese Yen exchange rate change over cash balance 3,205    (740)  (2,909)
Investments in short-term deposits, marketable securities and other assets, net(27,099)  (6,726)  (15,488)
         
CASH AND CASH EQUIVALENTS - END OF PERIOD$405,158  $408,098  $486,880 
         
FREE CASH FLOW$28,429  $33,150  $36,781  
         
         
         
  Six months ended   
  June 30,  June 30,   
  2019   2018    
         
CASH AND SHORT-TERM DEPOSITS - BEGINNING OF PERIOD$385,091   $445,961     
         
Net cash provided by operating activities 147,024    151,930     
Investments in property and equipment, net (85,445)  (80,195)   
Exercise of warrants and options, net 397    684     
Debt repaid, net (10,549)  (2,847)   
Effect of Japanese Yen exchange rate change over cash balance 2,465    1,798     
Investments in short-term deposits, marketable securities and other assets, net(33,825)  (30,451)   
         
CASH AND CASH EQUIVALENTS - END OF PERIOD$405,158   $486,880    
         
FREE CASH FLOW$61,579   $71,735     
         

 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
               
  Six months ended  Three months ended
  June 30,  June 30,  June 30,  March 31,  June 30,
  2019
  2018
  2019
  2019
  2018
               
CASH FLOWS - OPERATING ACTIVITIES              
               
Net profit for the period$46,122  $63,190  $19,722  $26,400  $36,009 
               
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 104,867   107,470   52,853   52,014   53,493 
Effect of exchange rate differences on debentures 6,205   (6,537)  2,204   4,001   (4,797)
Other income, net (445)  (1,600)  (428)  (17)  (1,578)
Changes in assets and liabilities:              
Trade accounts receivable 31,271   (10,262)  12,665   18,606   (18,351)
Other assets (5,755)  9,083   (2,050)  (3,705)  5,713 
Inventories (3,017)  (9,405)  378   (3,395)  (6,713)
Trade accounts payable (15,204)  3,909   (12,553)  (2,651)  10,222 
Deferred revenue and customers' advances  (13,649)  (6,178)  (2,964)  (10,685)  (5,466)
Other current liabilities (1,846)  9,136   2,957   (4,803)  13,355 
Long-term employee related liabilities 39   (194)  (29)  68   193 
Deferred tax, net and other long-term liabilities (1,564)  (6,682)  (599)  (965)  (5,151)
Net cash provided by operating activities 147,024   151,930   72,156   74,868   76,929 
               
CASH FLOWS - INVESTING ACTIVITIES              
Investments in property and equipment, net (85,445)  (80,195)  (43,727)  (41,718)  (40,148)
Investments in deposits, marketable securities and other assets, net (33,825)  (30,451)  (27,099)  (6,726)  (15,488)
Net cash used in investing activities (119,270)  (110,646)  (70,826)  (48,444)  (55,636)
               
CASH FLOWS - FINANCING ACTIVITIES              
               
Debt received (repaid), net (10,549)  (2,847)  (7,475)  (3,074)  3,809 
Exercise of options 397   684   --     397   26 
Net cash provided by (used in) financing activities (10,152)  (2,163)  (7,475)  (2,677)  3,835 
               
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGE 2,465   1,798   3,205   (740)  (2,909)
               
               
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 20,067   40,919   (2,940)  23,007   22,219 
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 385,091   445,961   408,098   385,091   464,661 
               
CASH AND CASH EQUIVALENTS - END OF PERIOD$405,158  $486,880  $405,158  $408,098  $486,880