Amkor Technology, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Amkor provides outsourced semiconductor packaging and test services. Financial statements are unaudited.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $1,596.8 million | $1,326.2 million |
| Gross profit / margin | $325.3 million / 20.4% | $265.5 million / 20.0% |
| Operating income / margin | $210.0 million / 13.2% | $144.4 million / 10.9% |
| Net income | $171.2 million | $120.0 million |
| Net income attributable to Amkor | $170.7 million; diluted EPS $0.69 | $119.8 million; diluted EPS $0.49 |
| Operating cash flow | $166.2 million | $176.8 million |
| Capital expenditures | $158.2 million | $110.4 million |
| Free cash flow (company-defined, non-GAAP) | $8.4 million | $67.0 million |
Sales rose 20.4%, driven primarily by advanced products, especially in communications and computing. Gross margin improved 0.4 percentage points, principally on higher sales and factory utilization, partly offset by a richer mix of products with higher material content. Operating margin expanded 2.3 percentage points, reflecting higher sales, improved gross margin, cost discipline and lower R&D expense as projects entered production. Q1 advanced-product sales were $1,156.5 million, compared with $920.7 million; mainstream-product sales were $440.3 million, compared with $405.5 million.
Liquidity, debt and capital
At March 31, 2022, cash and cash equivalents were $854.8 million and short-term investments were $307.0 million, totaling $1,161.8 million. Current assets were $2,939.6 million and current liabilities were $1,623.1 million. Total debt carrying value was $1,244.1 million, including $156.7 million due within 12 months; long-term debt was $1,087.4 million. Debt increased from $1,138.0 million at year-end 2021, including a $150 million draw during the quarter under a Korean term loan.
Amkor reported $600 million available under its new Singapore revolving facility and $645 million of total foreign revolving-credit availability. Management believed cash, operating cash flow and available facilities would cover working capital, capital spending, dividends, debt service and other needs for at least the next 12 months. The company was in compliance with debt covenants at quarter-end. Operating cash flow declined year over year, primarily because of working-capital changes; investing cash outflow increased with higher equipment spending and net investment purchases.
Outlook, risks and notable items
- Management expected 2022 capital expenditures of approximately $950 million, including about $100 million for the planned Vietnam factory and significant spending on advanced packaging and test equipment. Spending is subject to business, market, customer-demand and financing conditions.
- A government-mandated COVID-19 lockdown temporarily affected the Shanghai factory in March. Amkor expected a return to normal operating levels during Q2 but did not expect its usual seasonal increase in Q2 sales to occur in 2022.
- Industry supply constraints, long lead times, supply-chain disruption and inflationary pressures were expected to persist throughout 2022. Semiconductor cyclicality, factory utilization, product mix, pricing pressure, customer concentration and the lack of firm customer commitments may cause material fluctuations in results.
- Amkor is capital intensive and makes investments in advance of related revenue and without firm customer commitments. Higher material content in some advanced products and fixed manufacturing costs can pressure margins if utilization or demand weakens.
- Tax expense was $29.7 million, versus $11.7 million. The filing cites higher pretax income as the principal driver and warns that tax-holiday expirations may raise future tax expense. The Philippines tax holiday expired in December 2021; certain Korean and Singapore subsidiaries continued to operate under tax holidays.
- Foreign-currency movements produced a $4.3 million net gain in other income and expense, compared with a $0.6 million loss in Q1 2021. Management’s sensitivity analysis estimated that a 10% appreciation of foreign currencies against the U.S. dollar would reduce quarterly operating income by about $30 million, under the stated assumptions.
- Unrecognized tax benefits were $36.7 million gross at quarter-end; the company separately reported a $37.7 million net liability associated with them. Tax returns for 2011–2021 remain open to examination in various jurisdictions, with outcomes uncertain.
- Management said ordinary-course legal claims were not expected to have a material adverse impact, while acknowledging outcomes could change. Additional lease agreements of approximately $48 million had not yet commenced. Purchase obligations totaled $470.3 million, with $434.0 million due within 12 months.
Investor verification priorities
- Verify the progress and financial impact of the Shanghai factory recovery and the Q2 sales outlook after the lockdown.
- Track delivery, timing and returns on the planned $950 million 2022 capital program, including the Vietnam facility.
- Assess whether working-capital use, capital spending and dividends affect free cash flow and liquidity.
- Monitor debt maturities, borrowing availability, interest costs and covenant compliance.
- Review exposure to supply constraints, inflation, utilization and customer or end-market concentration, as well as tax-holiday expirations and tax examinations.