Q1 revenues came at the midpoint of guidance at $300 million down 3.2% year over year. Q2 guidance for revenues was $310 million plus or minus 5%, and very slightly above street expectations. The company has weathered the pandemic well to date and had not missed a day of production or any meaningful disruption in the supply chain. It has taken the precaution of ordering extra inventory to insure a steady production flow.
Revenues from Panasonic and Maxim combined were down $29 million in the quarter compared to down $36 million in Q4. Revenues from everyone else (aka organic) grew 10%. This is the last quarter evidencing the renegotiated contract with Panasonic and from here on out, all growth will be organic.
With the reduction in sales gross margin declined from 20.4% to 17.5%, while gross margin dollars came down $11 million or 17%.
Operating expenses increased $296,000 year over year, and were up $171,000 sequentially. The operating margin declined to 5.5% from 8.8% year over year. On a dollar basis it was down 40%.
Other income was a net expense of $2.1 million compared to income of $725,000 a year ago. Interest rates continue to come down, lowering interest income on the company’s substantial cash balance.
Pretax profit was $14.3 million versus $28.1 million a year ago.
The company had a reversal of taxes of $2.1 million in the quarter (from the US CARES ACT) versus paying the same amount last year. The tax rate for the full year of 2020 is still expected to be 4%.
GAAP net income was $17.0 million versus $26.2 million last year, while non-GAAP net income was $21.9 million versus $31.8 million.
Diluted GAAP EPS was $0.19 per share versus $0.25 last year. Adjusted non-GAAP EPS declined to $0.20 versus $0.30 a year ago. Average diluted shares for the quarter were 108.1 million, up from 107.0 million last year.
EBITDA for the first quarter of 2020 was $72.8 million compared to $78.8 million a year ago and down sequentially from $74.6 million in Q4 2019.
Balance Sheet and Capacity
The company has cash, short-term deposits, and marketable securities of $721 million compared to $747 million last quarter while decreasing debt by $28.7 million to $283 million. Its quick ratio is high at 3.1xs and it has $781 million in working capital. The company has been stockpiling cash to pay for both capacity expansion, as well as acquiring companies that contribute complementary products or technology. This year’s planned capacity expansion should be funded out of operating cash flow, leaving current balances the same. Operating cash flow this quarter was $69 million and free cash flow was $6 million.
The company is investing $100 million in capacity expansion in Japan, plus another $20 million for QT9 capacity (TSEM’s new 200-millimeter RF SOI technology). This quarter it spent $63 million on investments in cap ex. Plans are to spend the typical $42-44 million per quarter, plus the extra $100 million spent entirely in the first three quarters, plus $20 million for QT9 (spent equally in Q3 and Q4.) Thus total cap ex for the year should be approximately $290 million. Equipment being installed in the first half of 2020 and the capacity increase should be fully available by the end of the first half of Q2. The company estimates that at full utilization this capacity could provide $70 million in annual revenues and leave the company with a total revenue capacity of $1.65 billion.
In 2020, only Q1 was affected by the contract renegotiation with Panasonic, making overall growth more attainable. The 2020 revenue forecast assumes flat Panasonic revenues after taking out $23 million for contract renegotiation in Q1, Maxim declines of $9 million (also by design in its contract), and growth of 12% for the rest of the business (“low double digits.”) This adds to a total of $1.3 billion.
The company continues to grow in 2020 primarily due to increased market share and the growth of the end user markets. All of its product lines should grow expect for discretes where sales continue to decline. Analog ICs had very strong growth in Q1. They are benefiting from increasing market share, the ramp of 300mm due to a higher investment in equipment, and 5G handsets. However the mobile market has slowed and it is expected the market will grow more slowly than expected at the beginning of the year. SiG had resurgence in late Q4 from optical fiber infrastructure and orders are accelerating. Data centers orders are also rebounding and the company will benefit from higher margins from 400G, 800G and faster speeds. Power ICs remain good except for the automotive market and battery management (electric vehicles.) It should ramp in the bottom half of the year and the company expects to gain market share. Sensors have two main drivers—optical fingerprints on smartphones and under OLED and LCD, and time to flight for face recognition as well as cameras for gaming and augmented reality. One market not doing well is dental X-rays and dentists have been shut down during the pandemic.
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