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Amkor Technology Reports Financial Results for the Third Quarter 2017

TEMPE, Ariz.--(BUSINESS WIRE)--

Amkor Technology, Inc. (AMKR), a leading provider of semiconductor packaging and test services, today announced financial results for the third quarter ended September 30, 2017.

"We achieved record sales in the third quarter, up 15% sequentially and 5% year-over-year," said Steve Kelley, Amkor's president and chief executive officer. "Demand was strong in nearly all end markets, and our factories executed well.”

         
Results   Q3 2017     Q2 2017     Q3 2016
($ in millions, except per share data)
Net sales $ 1,135 $ 989 $ 1,086
Gross margin 19.1 % 17.4 % 19.7 %
Net income attributable to Amkor $ 54 $ 116 $ 60
Earnings per diluted share $ 0.23 $ 0.48 $ 0.25
EBITDA** $ 243 $ 316 $ 249
Net cash provided by operating activities $ 214 $ 97 $ 219
Free cash flow** $ 74 $ 43 $ 106
 

**EBITDA and free cash flow are non-GAAP measures. The reconciliations to the comparable GAAP measures are included below under "Selected Operating Data."

"As part of our 2017 Japan factory consolidation plan, we incurred approximately $10 million of one-time costs in the third quarter,” said Megan Faust, Amkor’s corporate vice president and chief financial officer. “After completion of the plan in the fourth quarter, we expect annualized savings from this initiative of around $30 million, including a $25 million reduction in manufacturing costs."

"Our focus on CapEx discipline has driven improved free cash flow," added Faust. "During the quarter we redeemed $200 million of the outstanding $400 million of our Senior Notes due 2021 using cash on hand. This will result in annualized pre-tax interest savings of approximately $13 million."

Cash and cash equivalents were $519 million and total debt was $1.4 billion, at September 30, 2017.

Business Outlook

"We expect solid fourth quarter demand in mobile communications and our other end markets, leading to another year of record sales for Amkor," said Kelley.

Fourth quarter and full year 2017 outlook:

Fourth quarter

  • Net sales of $1.05 billion to $1.13 billion
  • Gross margin of 17% to 18.5%
  • Net income of $34 million to $54 million, or $0.14 to $0.23 per share

Full year

  • Net sales of approximately $4.13 billion
  • Gross margin of approximately 17.5%
  • Net income of approximately $205 million, or around $0.85 per share (including an after tax gain of $0.34 per share from sale of K1 factory in Korea)
  • Full year capital expenditures of approximately $550 million

Conference Call Information

Amkor will conduct a conference call on Monday, October 30, 2017, at 5:00 p.m. Eastern Time. This call may include material information not included in this press release. This call is being webcast and can be accessed at Amkor's website: www.amkor.com. You may also access the call by dialing 1-877-645-6380 or 1-404-991-3911. A replay of the call will be made available at Amkor's website or by dialing 1-855-859-2056 or 1-404-537-3406 (conference ID 98894733). The webcast is also being distributed over NASDAQ OMX's investor distribution network to both institutional and individual investors. Institutional investors can access the call via NASDAQ OMX's password-protected event management site, Street Events (www.streetevents.com).

About Amkor Technology, Inc.

Amkor Technology, Inc. is one of the world’s largest providers of outsourced semiconductor packaging and test services. Founded in 1968, Amkor pioneered the outsourcing of IC packaging and test, and is now a strategic manufacturing partner for more than 250 of the world’s leading semiconductor companies, foundries and electronics OEMs. Amkor’s operating base includes 10 million square feet of floor space, with production facilities, product development centers, and sales and support offices located in key electronics manufacturing regions in Asia, Europe and the U.S. For more information, visit www.amkor.com.

         

AMKOR TECHNOLOGY, INC.

Selected Operating Data

 
Q3 2017 Q2 2017 Q3 2016
Net Sales Data:
Net sales (in millions):
Advanced products* $ 554 $ 431 $ 480
Mainstream products** 581   558   606  
Total net sales $ 1,135   $ 989   $ 1,086  
 
Packaging services 82 % 81 % 82 %
Test services 18 % 19 % 18 %
 
Net sales from top ten customers 67 % 67 % 68 %
 
End Market Distribution Data (an approximation including representative devices and applications based on a sampling of our largest customers):
Communications (smart phones, tablets, handheld devices, wireless LAN) 46 % 42 % 47 %
Automotive and industrial (infotainment, safety, performance, comfort) 24 % 26 % 24 %
Consumer (televisions, set top boxes, gaming, portable media, digital cameras) 13 % 14 % 14 %
Networking (servers, routers, switches) 10 % 10 % 9 %
Computing (PCs, hard disk drives, printers, peripherals, servers) 7 % 8 % 6 %
Total 100 % 100 % 100 %
 
Gross Margin Data:
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales:
Materials 37.1 % 35.3 % 37.2 %
Labor 15.2 % 16.4 % 14.6 %
Other manufacturing 28.6 % 30.9 % 28.5 %
Gross margin 19.1 % 17.4 % 19.7 %
 

* Advanced products include flip chip and wafer-level processing and related test services
** Mainstream products include wirebond packaging and related test services

In the press release above we provide EBITDA, which is not defined by U.S. GAAP. We define EBITDA as net income before interest expense, income tax expense and depreciation and amortization. We believe EBITDA to be relevant and useful information to our investors because it provides additional information in assessing our financial operating results. Our management uses EBITDA in evaluating our operating performance, our ability to service debt and our ability to fund capital expenditures. However, EBITDA has certain limitations in that it does not reflect the impact of certain expenses on our consolidated statements of income, including interest expense, which is a necessary element of our costs because we have borrowed money in order to finance our operations, income tax expense, which is a necessary element of our costs because taxes are imposed by law, and depreciation and amortization, which is a necessary element of our costs because we use capital assets to generate income. EBITDA should be considered in addition to, and not as a substitute for, or superior to, operating income, net income or other measures of financial performance prepared in accordance with U.S. GAAP. Furthermore our definition of EBITDA may not be comparable to similarly titled measures reported by other companies. Below is our reconciliation of EBITDA to U.S. GAAP net income.

         
Non-GAAP Financial Measure Reconciliation:
Q3 2017 Q2 2017 Q3 2016
(in millions)
EBITDA Data:
Net income $ 56 $ 116 $ 61
Plus: Interest expense 20 22 23
Plus: Income tax expense 19 33 24
Plus: Depreciation & amortization 148   145   141
EBITDA $ 243   $ 316   $ 249
 

In the press release above we refer to free cash flow, which is not defined by U.S. GAAP. We define free cash flow as net cash provided by operating activities less payments for property, plant and equipment, plus proceeds from the sale of and insurance recovery for property, plant and equipment, if applicable. We believe free cash flow to be relevant and useful information to our investors because it provides them with additional information in assessing our liquidity, capital resources and financial operating results. Our management uses free cash flow in evaluating our liquidity, our ability to service debt and our ability to fund capital expenditures. However, free cash flow has certain limitations, including that it does not represent the residual cash flow available for discretionary expenditures since other, non-discretionary expenditures, such as mandatory debt service, are not deducted from the measure. The amount of mandatory versus discretionary expenditures can vary significantly between periods. This measure should be considered in addition to, and not as a substitute for, or superior to, other measures of liquidity or financial performance prepared in accordance with U.S. GAAP, such as net cash provided by operating activities. Furthermore, our definition of free cash flow may not be comparable to similarly titled measures reported by other companies. Below is our reconciliation of free cash flow to U.S. GAAP net cash provided by operating activities.

         
Non-GAAP Financial Measures Reconciliation:
Q3 2017 Q2 2017 Q3 2016
(in millions)
Free Cash Flow Data:
Net cash provided by operating activities $ 214 $ 97 $ 219
Less: Purchases of property, plant and equipment (142 ) (183 ) (126 )
Plus: Proceeds from sale of property, plant and equipment 2   129   13  
Free cash flow $ 74   $ 43   $ 106  
 
     

AMKOR TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2017     2016 2017     2016
(In thousands, except per share data)
Net sales $ 1,135,027 $ 1,086,014 $ 3,038,074 $ 2,872,022
Cost of sales 918,389   872,214   2,506,295   2,403,732  
Gross profit 216,638   213,800   531,779   468,290  
Selling, general and administrative 75,567 72,363 220,045 216,894
Research and development 42,834 26,822 128,658 84,145
Gain on sale of real estate     (108,109 )  
Total operating expenses 118,401   99,185   240,594   301,039  
Operating income 98,237 114,615 291,185 167,251
Interest expense 20,321 21,488 63,733 58,496
Interest expense, related party 180 1,243 1,715 3,727
Other (income) expense, net 3,354   6,657   11,028   9,607  
Total other expense, net 23,855   29,388   76,476   71,830  
Income before taxes 74,382 85,227 214,709 95,421
Income tax expense 18,752   24,086   51,764   29,319  
Net income 55,630 61,141 162,945 66,102
Net income attributable to non-controlling interests (1,195 ) (1,052 ) (3,009 ) (2,175 )
Net income attributable to Amkor $ 54,435   $ 60,089   $ 159,936   $ 63,927  
 
Net income attributable to Amkor per common share:
Basic $ 0.23   $ 0.25   $ 0.67   $ 0.27  
Diluted $ 0.23   $ 0.25   $ 0.67   $ 0.27  
 
Shares used in computing per common share amounts:
Basic 239,068 237,353 238,873 237,157
Diluted 239,640 238,192 239,610 237,586
 
     

AMKOR TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

September 30,
2017

December 31,
2016

(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 519,449 $ 549,518
Restricted cash 2,000 2,000
Accounts receivable, net of allowances 691,700 563,107
Inventories 314,207 267,990
Other current assets 39,116   27,081  
Total current assets 1,566,472 1,409,696
Property, plant and equipment, net 2,706,715 2,564,648
Goodwill 25,076 24,122
Restricted cash 4,224 3,977
Other assets 109,782   89,643  
Total assets $ 4,412,269   $ 4,092,086  
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt $ 117,970 $ 35,192
Trade accounts payable 562,330 487,430
Capital expenditures payable 289,780 144,370
Accrued expenses 385,659   338,669  
Total current liabilities 1,355,739 1,005,661
Long-term debt 1,243,697 1,364,638
Long-term debt, related party 75,000
Pension and severance obligations 179,112 166,701
Other non-current liabilities 50,871   76,682  
Total liabilities 2,829,419   2,688,682  
 
Stockholders’ equity:
Preferred stock
Common stock 285 284
Additional paid-in capital 1,901,381 1,895,089
Accumulated deficit (143,621 ) (303,557 )
Accumulated other comprehensive income (loss) 18,309 6,262
Treasury stock (215,917 ) (214,490 )
Total Amkor stockholders’ equity 1,560,437 1,383,588
Non-controlling interests in subsidiaries 22,413   19,816  
Total equity 1,582,850   1,403,404  
Total liabilities and equity $ 4,412,269   $ 4,092,086  
 
 

AMKOR TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

For the Nine Months Ended
September 30,

2017     2016
(In thousands)
Cash flows from operating activities:
Net income $ 162,945 $ 66,102
Depreciation and amortization 435,667 416,517
Gain on sale of real estate (108,109 )
Other operating activities and non-cash items (9,763 ) (4,382 )
Changes in assets and liabilities (66,829 ) 13,379  
Net cash provided by operating activities 413,911   491,616  
Cash flows from investing activities:
Payments for property, plant and equipment (413,974 ) (481,670 )
Proceeds from sale of property, plant and equipment 133,320 13,687
Acquisition of business, net of cash acquired (43,771 )
Other investing activities (1,600 ) (143 )
Net cash used in investing activities (326,025 ) (468,126 )
Cash flows from financing activities:
Proceeds from revolving credit facilities 75,000 115,000
Payments of revolving credit facilities (155,000 )
Proceeds from short-term debt 50,333 27,594
Payments of short-term debt (52,068 ) (36,211 )
Proceeds from issuance of long-term debt 223,976 45,000
Payments of long-term debt (398,755 ) (12,955 )
Payments of long-term debt, related party (17,837 )
Payment of deferred consideration for purchase of facility (3,890 )
Payments of capital lease obligations (4,123 ) (1,691 )
Other financing activities 425   1,585  
Net cash used in financing activities (126,939 ) (16,678 )
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash 9,231   21,885  
Net increase (decrease) in cash, cash equivalents and restricted cash (29,822 ) 28,697
Cash, cash equivalents and restricted cash, beginning of period 555,495   527,348  
Cash, cash equivalents and restricted cash, end of period $ 525,673   $ 556,045  
 

Forward-Looking Statement Disclaimer

This press release contains forward-looking statements within the meaning of federal securities laws. All statements other than statements of historical fact are considered forward-looking statements including, without limitation, statements regarding the expected timing for completion of and annualized savings from our factory consolidation plan, the amount of interest savings generated by the redemption of $200 million of our 2021 Senior Notes, and all of the statements made under "Business Outlook" above. These forward-looking statements involve a number of risks, uncertainties, assumptions and other factors that could affect future results and cause actual results and events to differ materially from historical and expected results and those expressed or implied in the forward-looking statements, including, but not limited to, the following:

  • the highly unpredictable nature, cyclicality, and rate of growth of the semiconductor industry;
  • timing and volume of orders relative to production capacity and the inability to achieve high capacity utilization rates, control costs and improve profitability;
  • volatility of consumer demand, double booking by customers and deterioration in forecasts from our customers for products incorporating our semiconductor packages, including any slowdown in demand or changes in customer forecasts for smartphones or other mobile devices and generally soft end market demand for electronic devices;
  • delays, lower manufacturing yields and supply constraints relating to wafers, particularly for advanced nodes and related technologies;
  • dependence on key customers, the impact of changes in our market share and prices for our services with those customers and the business and financial condition of those customers;
  • the performance of our business, economic and market conditions, the cash needs and investment opportunities for the business, the need for additional capacity and facilities to service customer demand and the availability of cash flow from operations or financing;
  • the effect of the global economy on credit markets, financial institutions, customers, suppliers and consumers, including the uncertain macroeconomic environment;
  • the highly unpredictable nature and costs of litigation and other legal activities and the risk of adverse results of such matters and the impact of other legal proceedings;
  • changes in tax rates and taxes as a result of changes in U.S. or foreign tax law or the interpretations thereof (including possible tax reforms proposed by new administrations), changes in our organizational structure, changes in the jurisdictions in which our income is determined to be earned and taxed, the outcome of tax reviews, audits and ruling requests, our ability to realize deferred tax assets and the expiration of tax holidays;
  • curtailment of outsourcing by our customers;
  • our substantial indebtedness and restrictive covenants;
  • failure to realize sufficient cash flow or access to other sources of liquidity to fund capital expenditures;
  • the effects of an economic slowdown in major economies worldwide;
  • disruptions in our business or deficiencies in our controls resulting from the integration of newly acquired operations, particularly J-Devices, or the implementation and security of, and changes to, our enterprise resource planning, factory shop floor systems and other management information systems;
  • there can be no assurance regarding when our new K5 factory and research and development center in Korea will be fully utilized, or that the actual scope, costs, timeline or benefits of the project will be consistent with our current expectations;
  • economic effects of terrorist attacks, political instability, natural disasters and military conflict;
  • competition, competitive pricing and declines in average selling prices;
  • fluctuations in manufacturing yields;
  • dependence on international operations and sales and fluctuations in foreign currency exchange rates, particularly in Japan;
  • dependence on raw material and equipment suppliers and changes in raw material and precious metal costs;
  • dependence on key personnel;
  • enforcement of and compliance with intellectual property rights;
  • environmental and other governmental regulations, including regulatory efforts by foreign governments to support local competitors; and
  • technological challenges.

Other important risk factors that could affect the outcome of the events set forth in these statements and that could affect our operating results and financial condition are discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2016 and in the company's subsequent filings with the Securities and Exchange Commission made prior to or after the date hereof. Amkor undertakes no obligation to review or update any forward-looking statements to reflect events or circumstances occurring after the date of this press release.

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