Ladies and gentlemen, thank you for standing by. Welcome to the TowerJazz Fourth Quarter and Full Year 2016 Results Conference Call. All participants are currently present in listen-only mode. Following management’s prepared statements, instructions will be given for the question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, February 13, 2017. Joining us today are Mr. Russell Ellwanger, TowerJazz’s CEO; and Mr. Oren Shirazi, CFO. I would now like to turn the call over to Ms. Noit Levi, Vice President of Investor Relations and Corporate Communications. Ms. Levi, please begin.

Thank you and welcome to TowerJazz financial results conference call for the fourth quarter of fiscal year of 2016. Before we begin, I would like to remind you that some statements made during this call may be forward-looking, and are subject to uncertainties and risk factors that could cause actual results to be different from those currently expected. These uncertainties and risk factors are fully disclosed in our Forms 20-F, F-4, F-3, and 6-K filed with the Securities and Exchange Commission, as well as filings with the Israeli securities authority. They are also available on our website. TowerJazz assumes no obligation to update any such forward-looking statements. Now, I’d like to turn the call to our CEO, Mr. Russell Ellwanger. Russell, please go ahead.

Thank you, Noit. Firstly, welcome to all of you, thank you for joining us today. 2016 was a wonderful year, one in which we demonstrated the best business and financial performance in the history of the company. I appreciate and gratefully acknowledge the combination of a dedicated worldwide employee base, outstanding managers and leadership team for this achievement as well as and of great importance, customer partners who have and continue to trust us with their business. We continue to cement our position as the global specialty foundry leader and present yet another year of record revenues having reached $1.25 billion with an industry leading growth of 30% year-over-year. We also recorded our highest ever EBITDA of over $365 million, up almost 50% versus last year and breaking a $400 million fourth quarter annualized EBITDA run rate, with record net profit of over $200 million and overall margin increases. The performance generated approximately $120 million in free cash flow, a source that maybe used to support additional growth initiatives. This growth in performance evidence a successful business model, which in our case is analog industry leadership with low cost acquisitions, which acquisitions provide self-funded capacity increases. We remained focused on providing best-in-class specialty technology offerings by providing the right platform to support the trends that are now driving the world. We increased our competitive advantage with an existing and within new markets by being responsive to the present and future needs of our diversified customer base. As we did in the fourth quarter of 2015, I would like to discuss the end markets that are served within each of our main business units and provide color to the 2016 annual revenues and year-over-year growth for each of the major groups. I’ll discuss the offerings and roadmap progression and lastly present…

Thank you, Russell and welcome everyone. I will start my review by providing our P&L results highlights and then discuss our cash generation debt share account and the balance sheet. As we previously disclosed revenues for the fourth quarter were $340 million a 34% year-over-year increase as compared to $255 million and a 4% quarter-over-quarter increase when compared to $326 million. Gross and operating profit for the quarter were at a record of $88 million and $55 million respectively, representing 36% and 61% improvement as compared with $65 million and $34 million growth in operating profit in the fourth quarter of 2015 respectively. Both gross and operating profit also increased as compared to $81 million and $49 million respectively in the third quarter of 2016. Net profit for the fourth quarter was $48 million or $0.53 in basic earnings per share, a significant increase as compared to $22 million or $0.28 per share in the fourth quarter of 2015. Net profit for the third quarter of 2016 was $51 million and included a nonrecurring income tax benefit of $6 million related to the finalization of the subsidiary closure that held the fab in Nishiwaki, Japan, which ceased its operation in 2014. Diluted earnings per share for the fourth quarter were $0.49 per share as compared to diluted earnings per share of $0.25 in the fourth quarter of 2015 and $0.52 in the third quarter of 2016. Adjusted net profit for the quarter, as defined and reconciled in the tables of the press release was $53 million compared with $26 million in the fourth quarter of 2015 and $49 million in the third quarter of 2016. EBITDA for the quarter was at a record of $105 million as compared to $76 million in the fourth quarter of last year and $97…

Thank you Oren. Before we open up the call to the Q&A session, I would like now to add a general and legal statements to our results in regards to statements made and to be made during this call. Please note that the fourth quarter and fiscal year 2016 financial results have been prepared in accordance with U.S. GAAP in the financial tables in today’s earnings release includes financial information that may be considered adjusted financial measures and non-GAAP financial measures under Regulation G and related reporting requirements as established with the Securities and Exchange Commission, as they apply to our company. Namely, this release also presented financial data, which is reconciled as indicated in the table or in the call on an adjusted basis, after deducting, amortization in acquired intangible assets, compensation expenses in respect of equity grants to directors, officers and employees, gain from acquisition, net, non-cash financing expenses related to bank loans early repayment; and other non-recurring items such as income tax benefits. Adjusted financial measures and non-GAAP financial measures should be evaluated in conjunction with, and are not substitute for, GAAP financial measures. The tables and the earnings release also contained the comparable GAAP financial measures to the adjusted financial measures as well as the reconciliation between the adjusted financial measures and the most comparable GAAP financial measures. EBITDA is reconciled in the tables from GAAP operating profit. EBITDA is not a required GAAP financial measure and may not be comparable to a similarly entitled measures employed by other companies. EBITDA and adjusted financial measure and the non-GAAP financial information presented herein should not be considered in isolation or as a substitute for operating income net, income or loss cash flows provided by operating, investing, and financing activities per share data or other income or cash flow statements that are prepared in accordance with GAAP and is not necessarily calculated or presented on a basis consistent with the same or similar data presented in previous communications. And now we will open up the call for Q&A. Operator?

Thank you. Ladies and gentlemen at this time we'll begin the question-and-answer session. [Operator Instructions] The first is from Cody Acree of Drexel Hamilton. Please go ahead.

Congratulation guys and thanks for taking my questions. Maybe Oren just a housekeeping question on the currency details and thank you for that. I understand that the business margin or profitability impact, but you did have quite a bit of a revenue headwind during the December quarter, can you maybe just detail how much revenue impact you had to absorb to get to that $40 [ph] million number?

The yen -- the average yen rate on Q4 2016 was 110 to 111 which is compared to 103 ahead of the average of Q3, so it’s a 7% and we said in the past that Panasonic revenue are between $90 million to $105 million per quarter. So if you assume 90 times 7% that’s the impact. But like you mentioned it’s fully offset by the same impact on the COGS, so no impact on the -- almost no impact on any of the margins.

Are you building in any cushion or volatility for revenue for Q1.

Cushion, or what do you mean?

Just in your guidance for Q1, how are you -- what are you assuming for currency?

We assume the current exchange rate, which is already Q1, I mean we are in the middle of Q1 and already the average is about the same 113 and we assume the same will stay. So we don’t assume -- we don’t expect anything that will change.

Okay, thank you very much. Russell just could you talk about the likelihood of you needing sign another capacity deal in 2017, it sounds like your utilization rates are moving up nicely and you’re expecting TPSCo to continue. So what happens as we exit and look into 2018 and beyond?

. : We had stated that we are pursuing a strategy in China, which we are indeed pursuing and this would be to where we would partner with somebody and possibly a municipality to build a greenfield site, for which our portion of investments would be our IP and building a fab and quipping a fab and in bringing technologies into the fab it would not be an upfront investment from us, it would be an in kind investment on capability for where nominally we would be being paid during that period as well. So that would be one area of gaining greenfield capacity where it would not be at all from a TowerJazz standpoint a greenfield type investment as far as the capital that would typically go into a greenfield build. On the other that we have had opportunities for in the past year, maybe year and a half, but we haven’t seen the proper opportunity other than the Maxim San Antonio factory would be to continue the type of an arrangement that we did with Panasonic, with TPSCo or going to full 100% acquisition what we did with Maxim for San Antonio and there have been several opportunities of that nature that for our specific needs the opportunity didn’t fit 100% the template that we would like to have, one of them we tried very hard to make work, but it just didn’t meet our Templin. But one of the beauties for us, with IDM consolidation that continues to go forward is that typically IDM consolidation does allow available factories due to the consolidation and under-utilization that some factories become available within the market. And at this point we have reached the level of customer range that most of the consolidations being done, we have a relationship with either both of the IDMs or with one or the other of the IDMs. So the ability to get into such a deal at a very, very early stage is very real. Hopefully it answered your question Cody.

It does. And so I guess just point of clarification though, if you pursue this trainings opportunity when it comes to provision. A greenfield build or ramping of capacity what's the earliest timeline that you think that that could actually have an impact to your capability?

I think it would be a bit shy of two years that you would start running pilot runs through the fab so you would be able to have a flow that's qualified within a two year period. In China things can move very, very quick once they kicked off.

And then at the Analyst Day you discussed other initiatives. I think one of them being at maybe the possibility of looking at another vertical like MEMS. You mentioned it briefly in your remarks of possible drivers. But can you elaborate on any thoughts following that Analyst Day?

So it wasn't just solely MEMS it was MEMS and sensors. Sensors may or may not be MEMS based. But however that is not capacity M&A so to speak that really is a technology capability. But certainly for the MEMS type of an activity or a strong sensor type activity for a variety of different end applications. To really grow in that market we believe in a very strong fashion you have to vet many, many customers to try to vet many customers within an existing high volume factory is very difficult because each of these require a very strong amount of specific development for that customer and in particular with MEMS flows. So the impact on the efficiency of the factory becomes very, very strong. So for a MEMS type of activity what we have stated was that we would be looking at two things one is something that would bring with it IP and the IP is both from a protection portfolio as well as from a human capability side. And then addition to the IP would be to have some small capacity that is either presently or could quickly become cash flow neutral or cash flow positive to that many customers. And upon any customer reaching a certain level I don't know you can say 500 to 800 or 1000 doesn't actually matter, but reaching a certain level of production to guarantee that customer continuation of the production in vetting factory while you're transferring the specific flow into a high volume factory and at that point doing it in a way that would not impact the efficiency of the high volume factory. In the case of sensors specifically, there is really two ways to get into that type of a market. One is again to do, as I was speaking of with the MEMS activities. The other would be to bring on a specific IDM transfer that we do with discretes and to deal with the very, very high volume first tier sensor company and bring one of their flows into your factory, and serve them and develop a very strong core capability by bringing up a very specific flow and flow family for an end customer that you know to begin with has very high volume demand and can guarantee you that the development does go into high volume because of a take or pay agreement.

Thank you very much for that. And then the last from me Russell, you mentioned on the RF side that for 2017 you're expecting single-digits I guess I was a bit surprised by that growth rate. Could you just tell me what's going into does it slowing of the smartphone market changes in your kind of customer visibility, just any color?

We have really gained a very, very strong market share within that market. We think that the percentage of the market that we have now is at the right place to be at. And it's not necessarily our desire to grow the mobile market at a greater percentage than we have presently of the overall revenue. On the infrastructure market we still see very nice growth there and we're focused on that. But the mobile market I think that we're sitting very nicely at the point that we are at the 22% I don’t think as the company grows obviously that is increasing and -- but we really don’t want to have too much exposure to any given single market be it mobile or elsewhere.

That’s perfect, thank you. Thanks for your help and congratulations.

Thank you, Cody. Very good questions.

The next question is from Rajvindra Gill of Needham & Company. Please go ahead.

Hey, congratulations as well. Russell in terms of your comments about the year-over-year growth rate, if you look at the guidance for Q1 it implies growth rate of about 19% year-over-year after growing 23% in March of 2016. And you come up again from pretty tough comparison as well as you progress throughout 2017, Q2 and Q3 and Q4 have been growing at 30% to 34% year-over-year last year. Can you describe you gave some detail in terms of the RF and HPA segment growing kind of single-digits, I don’t know if it’s high single-digits or single-digits after growing 30 odd percent year-over-year could you talk a little bit about what you’re seeing in that particular segment? And then you mentioned the other segments are growing well above 25% can you describe some of the drivers that you’re seeing there?

So for the RF and HPA I think it’s somewhat similar to Cody’s question we had stated that we’ve gained a substantial market share within the mobile platforms. We’re not necessarily desirous to grow that well beyond where we’re at, but to continue on advanced platforms working with the customers that we have to protect and grow to some extent the market share that we have and that’s where we had stated was about 22% of the corporate revenue dealt with the mobile platforms. In the area of infrastructure and this is the millimeter wave optical transceiver area on way we have a very strong focus on and we believe that we’ll continue to see very big growth in a year-over-year basis. The other markets in the area of CMOS image sensors we’re seeing very strong growth within the industrial sensor market and multiple strong engagements within the DSLR market. But the biggest growth factor for us there is within the industrial sensors and there’s very-very strong demand there and our medical sites continues to grow as well. In the power management it’s across the board with our power management platforms, I spoke of several different things that we’re doing with power management, our BCD process in general has gained very, very strong market acceptance and we really across all end-applications we have nice growth there. I had mentioned that we’re moving additionally into higher voltage power management, part of that with a 200 volt SOI and a greater variety going up to an 80 volt but with power management it really goes across an entire gamut of applications. Probably in the mixed-signal and others we’ve had very nice growth within the aerospace and defense continue to see a good forecast within aerospace and defense that’s within the Newport Beach facility it’s a very good market, it’s also a very high margin market and we’ve seen very strong growth within the MEMS and sensor area.

Maybe just to complete the first part of the question about the growth, so indeed you are correct that we have 19% forecasted growth year-over-year as compared to 30% in the last year, but last year you should remember that we acquired the San Antonio Fab so it’s the Maxim incremental, which according to market numbers or analyst numbers it’s 20 something million a quarter maybe. So as compared to $240 million on baseline of 2016 which you compare it’s about 10% or 12% from the 30%. So if you deduct 12% from the 30% it’s about 18% average with only grow previous year. So we’re actually keeping the same momentum and the same percentage of growth this year as well.

So just to summarize you got the core business that’s growing 18% year-over-year, but you also mentioned positively that Maxim is going to accelerate to 30% year-over-year.

No, I didn't say that. I said that the revenue out of the San Antonio factory will go up 30% over the base Maxim contract.

The base Maxim contract and remind us what that is again, Russell?

That’s what Oren referred to, we've never stated nor can we legally state, what that is. Analysts have put out what they think, the number is coming out of Maxim, but we cannot legally state what it is. That was something we agreed to with Maxim when we bought the fab. But we do have a 15 year contract with Maxim that at certain incremental years allows Maxim to decrease the usage of the factory what we stated was that for the first multiple years that the contract itself will cover all the fixed cost of the factory. But we've never stated exactly, what that is nor again are we legally allowed to state that number. We did state what the Panasonic was, which was an annual range of 360 to 420.

Right, okay. Thank you.

I did want to add one other thing though and this is why at maybe some times can get a little confusing. The Maxim San Antonio factory itself, we looked at it as really an extension of a business that we had with Maxim. So, although the revenue coming out of that factory is stable and under a long-term contract for the first multiple years. When we did that deal, it really -- it was enabled through a relationship we have with Maxim of serving them within the optical market and the relationship was extremely strong, which allowed us to work together on something that was very, very important to them and critical to them. So, for the growth in 2016 and some people that was thought of organic growth, because we extended an already existing relationship with Maxim and other people it was looked at as an M&A growth and it doesn't really matter, how you want to look at it. But a certain portion of that growth is stable and under long-term contract and that will not grow. Hopefully that answers your question and thoughts there?

Yes, thank you.

Thank you.

The next question is from David Duley of Steelhead Securities. Please go ahead.

Yes, thanks for taking my questions and congratulations on a great year. A couple of questions from me, could you talk about -- you mentioned the millimeter wave opportunity I think, I think those are automotive sensors. Could you just talk about how big you think that opportunity is for power and what would expect on a near-term or longer term basis as far as our revenue targets for that?

Millimeter wave is certainly goes into the automotive radar but the biggest proportion of our business there is really on backhaul so it's infrastructure presently. On the automotive radar, I think the market can be very strong. We do have a very nice engagement on automotive radar presently and if all goes according to agreements, it should be press released in April. And I think for us probably we would be looking at a share of, I think, the served market probably sitting somewhere about $0.25 billion over the next years and our share of market we probably target to be some good portion of that. But though you could think it's for us a $200 million to $300 million served market and how much share will we get, we'll see. But I think that's a press release that will do should be very exciting providing all goals according to agreements and it is press released in the April timeframe.

Okay, excellent. Now as far as the growth rate goes, a couple -- there has been a couple of questions on this, maybe just I'll ask it a different way. You've highlighted that the core business so to speak is kind of growing at an 18% year-over-year basis on an organic basis, I guess. Is that a good expectation to think about the core business throughout the balance of the year or because of the difficult comps last year, do you think that we should think a little bit lower year-over-year growth rate?

So, if you were to just extend from what we've stated and that was that we see growth throughout the year and according to customer forecast and we would see every quarter being measurably higher than the corresponding calendar quarter of the previous year. I don't think that an 18% is unreasonable or a 19% or maybe higher or maybe lower. But we didn’t give a full year guidance, but we do see very reasonable year-over-year growth '17 versus '16 and I don’t think it will be out of line with previous years.

Okay, thank you. And then as far as the CapEx and free cash flow going forward, great year of operational cash flow and free cash flow seems like it is accelerating, could you just maybe give us what your planned CapEx might be and what kind of free cash flow would you think that would generate in '17?

So the CapEx is inline -- it’s Oren, the CapEx is in line with previously -- with the previous model that we presented and filed on November in the presentation that should be not more than $42 million a quarter between $40 million to $42 million and as you can see we already achieved it for Q4 ‘16. The cash from operations, usually it follow the revenue increase and the incremental margins that we have. One shall of course note the fact that as we released, we got about $50 million or $60 million of a customer prepayment that used in the last year and year and half to purchase additional CapEx which always great and those customer prepayment are returned to the customer based on shipments and orders of the customers. So this maybe assumed to be return to the customers over a period of between one year to seven year depend on the specific contract through shipments and depends of course of the wafer demand of the customer, maybe you can assume that averagely it’s over a three year weighted average over the three year period. So maybe if we got $50 million to $60 million, repayment of about $20 million for the entire year is reasonable if we just take this linear approach. But other than that cash from operations of course should go higher than current base line of $82 million in Q4.

Okay. And then final question from me, you talked about image sensor business I think growing at very strong rates for you, I can’t remember what the exact number, I thought you said all the segments to grow more than 25% but I can’t remember the exact number there? And you mentioned it was the highest margin business that you have, would that -- would you think that your growth margin drop rate would improve in 2017 versus 2016, because of the mix?

Yes, it should improve because of the mix, because of the fact that actually we are -- I mean as we showed in the model, the incremental gross margin should be 50% to 55% like presented, 55% like presented in the model and the current baseline is below 55% right. So it should improve and definitely the image sensor which is more than 55%, it’s more even than 65% the average incremental gross margin should contribute to this as well as the growth in Uozu fab. So yes this is one of the drivers that should enable us to achieve the 55%.

Okay, thank you very much and congratulations.

Thank you.

Thank you.

The next question is from Richard Shannon of Craig-Hallum. Please go ahead.

Well hi guys. I’ll add my congratulations on an excellent last year, keep up the great work.

Thank you.

Maybe just a couple of questions from me, kind of digging in a layer here in a couple of different markets and maybe I’ll follow-up the last question here on the image sensor topic. Russell curious to the extent to what you see the growth here from that space coming from the markets where you are doing relatively better like investor or medical or is there any noticeable amount of contribution from some of the other maybe newer markets I think like security or maybe the mobile space. In any way you can help us understand that would be great to hear. Thanks.

So we have a substantial business there, a good business within cinematography and that’s growing, we are not strong into cell phones, that’s not something that we really focus on the cell phone, we do have some very high megapixel cameras that we're doing for certain smartphones, which was nothing since until we did TPSCo acquisition because it’s done in 300 millimeter in Uozu factory. So that’s a very high growth rate, but it’s not necessarily the highest growth that we have. Security is definitely growing and we stated that that’s one of our focuses of this coming year. By far the biggest growth is within the industrial and the biggest single segment within image sensor that we have is high-end photography and that’s for DSLR and for cinematography. That answers your question?

Yes, that’s helpful, perfect, thank you, Russell. Maybe stepping over to the infrastructure side of your business area looking for very strong growth this year, curious whether this is -- if there is any expectations of share growth in that segments, I know you have sounds like which really only one other true foundry competitor there wondering if there is any expectation share go in there, are we expecting that 25% plus growth all without any share gains?

As far as the RF side, we stated that the RF this year is somewhere in the single-digit, so be specific, mid-single digits. So the infrastructure sits within that group, in infrastructure we have presently somewhere about 65% market share so a substantial growth in market share is not necessarily so forthcoming. When you enjoy such a high market share to begin with, the growth within that area is really just continual need for data rate.

Okay, that is great. I knew it was high, but is that highest thank you for that. And maybe one last question from me guys, more of the gross margin question, gross margin topic I’m following up and one of the last questions. Again it seems like some of your growth is coming from higher gross margin areas, anyway that you help us think about how much higher image sensor as a broad category might be above your corporate average in terms fall through or is there any thought that we should entertain about being able to do at the high-end of that 50% to 55% fall through or perhaps even better?

Yes the image sensor is depends on which way but the range is between 70% or 80%. However this is just one, I mean this is part of the mix that we assumed already in the model that we presented, which resulted in that the weighted average growth is of -- the weighted average incremental margin is 55%. So for image sensor we have 70% to 80%, but we have other business which is 40%. So the weighted average mix, I mean the weighted average still the same exactly like we presented in the model 55%.

Okay, fair enough guys. That’s all the questions from me, thanks again.

Thank you very much.

There are no further questions at this time. Mr. Ellwanger, would you like to make your concluding statement?

Certainly. Again, we are always very appreciative, very excited to have opportunity to update on what the company is doing, what we've done, where we're going, as stated at risk of too many times already, 2016 was really an exceptional year for the company. But not exceptional as far as the fact that we expect it to keep going, because we do expect this type of performance to continue to propagate, but exceptional in the fact that the results were very, very strong, validation of a business model. Where we acquired very substantial capacity at very low cost. Where the agreements with the partners that we bought from or became partners with more or less cover the cost as we move forward, providing very minimal risk for a downside against running cost and allowing ample free capacity from day one. And I think that the margin increases, the net profit increase, the free cash flow increases that we saw within 2016 show that what we're doing with an analog is sustainable and doable and that the business model is very, very real. We do see 2017 for the core businesses being a good growth here. I think Cody’s question was very relevant insightful that from a direction that we are going we will need to be announcing sometime within 2017 early 2018 new initiatives to increase our capacity within this analog space and this analog model. And within a model that we are not using a very, very strong amount of investor money to establish greenfields where you have many, many years as before you get back an ROI on that capacity that you are building. So, we really -- I’m very excited about where we are at, very excited with the cash position of the company, the freedom that…

Thank you. This concludes the TowerJazz fourth quarter 2016 results conference. Thank you for your participation. You may go ahead and disconnect.