GLOBALFOUNDRIES Inc. Q4 FY2021 Earnings Call

Thank you operator and good afternoon everyone and welcome to GlobalFoundries' fourth quarter and full year 2021 earnings call. On the call with me today are Tom Caulfield, CEO; and Dave Reeder, CFO. A short while ago, we released GF's fourth quarter and full year 2021 financial results press release, which is available on our website at investors.gf.com along with today's accompanying slide presentation. This call is being recorded and a replay will be made available on our Investor Relations' web page. During this call, we will present both IFRS and adjusted non-IFRS financial measures. The most directly comparable IFRS measures and reconciliations for adjusted non-IFRS measures are available in today's press release and accompanying slides. Certain statements on today's call may be deemed to be forward-looking statements. Such statements can be identified by terms such as believe, expect, intend, anticipate, and may. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements and we undertake no obligation to update any forward-looking statements we make today. For more information about factors that may cause actual results to differ materially from forward-looking statements please refer to the press release we issued today as well as risks and uncertainties described in our SEC filings including the sections under the caption Risk Factors in our final prospectus filed with the SEC on October 29th, 2021 in connection with our IPO. We will begin today's call with Tom providing a summary update on our end markets, capacity expansion, and technologies. Following which Dave will provide details on our fourth quarter and full year financial results and also provide first quarter guidance. We will then open the call for questions. We request that you please limit your questions to one with one follow-up. I will now turn the call over to Tom for his prepared remarks.

Thank you, Sukhi. Welcome everyone to our fourth quarter and full year 2021 earnings call. I'd like to start by reflecting on last year. By any measure, 2021 was an outstanding year for GF. We drove an acceleration of our business plan by capitalizing on the vital role we play in the semiconductor supply chain. We created, defined, and implemented a new economic model for our industry and we used it to increase visibility and support our customer success with over 30 significant long-term agreements. With the entire world focused on our industry, we played and continue to play an important role by articulating the importance of semiconductor manufacturing and redefining innovation for our industry. Finally, we took GF public which was a culmination of over a decade of work to build an at-scale global semiconductor manufacturer with strong technological differentiation and driving meaningful earnings growth. Through strategic partnerships with our customers, we believe we have positioned our business for sustained growth over the next three to four years with the trajectory to deliver accelerated profitability. We are well-positioned to execute on our plan to deliver a more than 50% output increase exiting 2023 compared to 2020 by adding capacity in Malta, New York; Dresden, Germany; and in Singapore. We are continuing to execute on our plan to mix up our 200-millimeter facilities in Burlington and Singapore with differentiated single-source SOI, SiGe, and feature-rich CMOS technologies. We expect that all of this combined will result in consistent execution from GF that will enable us to achieve our long-term sustainable financial model. That is investing 20% of revenue on CapEx to deliver consistent growth while generating strong free cash flow and as a result delivering meaningful shareholder value. Now, moving on to our fourth quarter. We are pleased to report a quarter of strong topline and profitability growth, demonstrating the continued momentum of our strategy. Fourth quarter revenue grew 9% quarter-on-quarter driven by higher wafer output, higher ASPs and increased non-wafer revenue...

Thank you, Tom. Now, on to our fourth quarter and full year 2021 results. Our fourth quarter results exceeded the high end of the financial range we provided in our last earnings call. Fourth quarter revenue was approximately $1.85 billion, which increased 9% sequentially, driven by higher wafer shipments, ASPs and non-wafer revenue. We shipped approximately 622,300 millimeter equivalent wafers in the quarter, an increase of about 2% on a sequential basis. ASP per wafer increased approximately 3% sequentially, driven by ramping LTAs with better pricing and overall very constructive transactional pricing environment and continued improvement in product mix. Wafer revenue from our end markets accounted for approximately 89% of total revenue. Non-wafer revenue which includes revenue from reticles nonrecurring engineering, expedite fees and other items, accounted for approximately 11% of total revenue for the fourth quarter, consistent with our expectation of approximately 10% of total revenue. For the full year, revenue came in at approximately $6.6 billion, representing a 36% year-over-year increase. As expected, all of our end markets grew meaningfully, except for the year-over-year reduction in personal compute, which declined as planned, as we remix our business to more differentiated solutions. For the remainder of the call, including first quarter guidance, I will reference adjusted metrics, which exclude stock-based compensation. For the fourth quarter, we delivered adjusted gross profit of $397 million, which translates into approximately 21.5% adjusted gross margin. The 346 basis points sequential improvement was primarily driven by better fixed cost absorption, higher ASPs and improved mix...

Hey guys. Good afternoon. Thanks for letting me ask the question. Tom, I was wondering if you could talk a little bit about kind of the ASP progression you see for calendar year '22. You're kind of in the envious position of being supply limited. You did a good job on the call kind of talking about the growth in wafer outs through the balance of the year. How are you thinking about ASPs? And how are you navigating kind of getting paid for value not taking advantage of the cyclical environment and still maintaining those long-term customer relations?

John, as we discussed during the road show and in our last call, it's crucial for us to maintain a balanced approach. We wanted to ensure that we prioritized long-term certainty when signing these agreements, especially since we're increasing our capacity. It was important that our customers share commitment to that capacity. Therefore, we balanced the certainty of our business with growth in average selling prices. David can provide more specifics, but this year is significant as we need to give our customers the opportunity to manage the price increases as they handled them in 2022. We anticipate a high single-digit increase in average selling prices at the enterprise level this year, achieved in a careful way alongside our customers, leveraging their resources to create the capacity necessary for the growth we are discussing. David, do you have anything to add?

Yes. Hey John. From a volume perspective, what we've talked about is we're going to grow capacity in the high single digits year-over-year from 2021 to '22. And then ASPs as Tom mentioned those ASPs will actually grow about 10% year-over-year versus high single digits. So, volume up about high single digits year-over-year. ASP is up in the 10% range year-over-year. Did you have a follow-up John?

Good afternoon and congratulations on the strong execution. The demand environment stepping into this year looks quite strong across your end markets. The team is anticipating strong revenue growth this year. I think based on your shipment and your ASP outlook, in your prepared remarks or an answer to one of the questions, it looks like you guys are going to grow revenues in the sort of high-teens percentage range this year. Help us sort of rank order which of your segments are going to be driving the strongest growth this year?

Hey David, I'll let you start and then I'll add some commentary as to why.

Sure. The automotive segment is a smaller part of our business, but we've discussed it extensively. We anticipate that this sector will experience fluctuations from quarter to quarter, but we expect strong year-over-year growth for 2022 compared to 2021. The home and industrial IoT business also performed well in 2021, and we expect it to grow even more rapidly in 2022, becoming a more significant part of our overall portfolio. We are seeing substantial traction in both home and industrial IoT.

Thank you. Could you discuss the $4.5 billion in capital expenditures and how much that would increase your wafer fab capacity when fully implemented? I understand it won't be fully implemented this year, but could you provide a rough estimate of that increase and its implications for your overall wafer growth? Additionally, could you share some insights on your capital expenditures for 2023?

Sure, Joe. Look what we talked about kind of in the road show as well as a little bit on the prior call, what we talked about taking our wafer capacity from 2020 from about 2 million wafers to north of 3 million wafers as we're exiting 2023 from a run rate perspective. And again, that's what that fully ramped Singapore facility that's currently under construction today. And so if you look at the 2021 numbers, we delivered roughly 2.4 million wafers in 2021 rounding up slightly there. And so we're not quite halfway there right to get to more than 3 million wafers per year and so the $4.5 billion investment this year again that's our investments in coordination with our customers as well as some partnerships with governments. That helps take us a good portion of the way to that 3 million wafers. So directionally, 2023 will decline from what we're spending in 2022...

Yes, we discussed this previously. We began placing orders to support our growth at the end of 2020, and many of our orders were made in the first half of 2021 before the capacity of our equipment manufacturers became fully utilized. This reflects our early planning to secure our equipment orders, allowing us to build capacity. The equipment industry needs to increase its capacity just like we do to support this growth, and I believe they have plans to do so.

All right. Thank you, Towanda. Thank you everyone for your interest in GF and for joining us on this call. Please feel free to reach out with any questions and we look forward to speaking with you in the quarter. Thank you.