Ladies and gentlemen, thank you for standing by. Welcome to the TowerJazz Third Quarter 2017 Results Conference Call. All participants are currently present in a 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, November 7, 2017. Joining us today are Mr. Russell Ellwanger, TowerJazz’s CEO; and Mr. Oren Shirazi, CFO. I would now like to turn the conference over to Ms. Noit Levi, Vice President of Investor Relations and Corporate Communications. Ms. Levi, please go ahead.

Thank you. And welcome to TowerJazz financial results conference call for the third quarter of 2017. 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. Welcome all of you to our conference call and thank you for joining us. We reported another strong quarter with record revenues of $355 million or $1.42 billion annualized run rate with incremental net profit margins strongly outpacing the revenue growth, demonstrating added value being provided to our customers and to our shareholders. We reported record EBITDA for the quarter at $109 million, up 12% over last year. GAAP net profit for the third quarter was $55 million, representing an increase of 8% year-over-year or 24% on an adjusted basis. For the fourth quarter of 2017 our guidance is $358 million plus or minus 5%, resulting in annual year-over-year growth of 11% of which 20% of that is organic business unit based growth. Oren will cover our financials in much more detail in a few minutes. Excluding the Panasonic and Maxim long-term contracts, which are committed and stable, another words considering only our business unit driven growth we recorded year-to-date organic growth of above 20% year-over-year. I’d now like to review the main activities in these various business units that will ensure mid to long-term growth and further cement our leading position in the relevant markets. In RF and high precision analog we’re investing in technology to address the next-generation of connected and smart devices. For wireless, we are focused to bring to market technology for upcoming 5G standards that will substantially increase mobile data transmission rates. This includes continuing our aggressive roadmap in RF SOI, but as well augmenting this with RF MEMS which promises to leapfrog RF SOI performance with switching speeds down to 50 femtoseconds or less to address the most demanding switching and tuning applications in smartphones and IoT terminals. 5G also includes a much higher frequency band 28 gigahertz versus less than…

Thank you, Russell, welcome everyone. I will start my review by providing the highlights of our P&L results and then discuss our cash flow reports and our balance sheet. For the third quarter of 2017 we reported today a year-over-year increase of $28 million in revenue to a record $355 million as compared to $326 million in the third quarter of 2016, resulting in a record EBITDA of $109 million net profit of $55 million, record cash generation from operation of $104 million and record free cash flow of $62 million. Both gross and operating profit for the quarter increased year-over-year and were at $89 million and $55 million, respectively, as compared to $81 million and $49 million in the third quarter of 2016, respectively. With EBITDA for the third quarter of 2017 of $109 million, which is $12 million higher than the third quarter of 2016. Net profit for the third quarter of 2017 also increased and was $55 million or $0.56 in basic earnings per share and $0.54 diluted earnings per share as compared to $51 million or $0.58 basic per share and $0.52 diluted earnings per share in the third quarter of 2016. As our TPSCo foundry business and revenue continues to grow, we reached a profitability level entailing royalties to TowerJazz and Panasonic. This results in a higher cost of revenue, proportionally yielding a lower gross margin, creating a lower tax expense and lower non-controlling interest, which in turn generates greater net profit, greater cash and greater free cash flow to the company. This is seen in the 55% incremental net profit margin increase as compared to the second quarter of 2017. Our adjusted net profit for the third quarter of 2017 was at a record of $61 million, 24% increase as compared to $49 million…

Thank you, Oren. Before we open up the call to the Q&A session, I would like now to add general and legal statements made and to be made and with regards to our results. Please note that the third quarter of 2017 financial results have been prepared in accordance with U.S. GAAP and 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; one, amortization of acquired intangible assets; two, compensation expenses in respect of equity grants to directors, officers and employees; three, gain from acquisition net; four, non-cash financing expenses related to bank loans early repayment; and five, other non-recurring items such as acquisition-related costs and Nishiwaki Fab restructuring costs and impairment. Adjusted financial measures and non-GAAP financial measures should be evaluated in conjunction with, and are not a 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 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. [Operator Instructions] First question is from Cody Acree of Drexel Hamilton. Please go ahead.

Thanks guys for taking my questions and congratulations on the progress. Russell, maybe if we can start -- I’ve got a couple for you and couple for Oren. Russell, going back to your statements about China kind of I think you said multiple initiatives and multiple opportunities you are exploring. Could you just maybe provide any further color is to maybe kinds of projects or the kinds of engagements that you’re looking that, I know there is only such detail, but if you could at least maybe provide color on the types of things you are looking at?

Certainly, Cody, to the degree of that that I can. So we have announced the partnership on a technology capability, where we are doing the Backside Illumination. We had announced the engagements in a certain amount of RIPs as in-kind investments for which we would also get paid and gain capacity with Tacoma and Nanjing. We are pursuing other such opportunities, not necessarily identical to that of Tacoma, but where you would have other municipalities that are interested in creating semiconductor manufacturing capability and aligned maybe with a different funding structure from the central government or the municipality, one such where in very strong discussions with, but nothing to a appoints that there is a definitive agreement or even an MOU or a binding MOU, so nothing at the level of presenting. But the overall drive and incentive that we have is to continue our growth within China from the pure foundry capability, operational capability that we have in our other sites and there we have been doing extremely well. As I mentioned, about -- a bit over 80% year-over-year growth against the base of multiple tens of millions of dollars to begin with, also extremely good application support team, very, very good sales and country manager. So those activities continue. We believe to have more local presence there with manufacturing capability would only accelerate our growth rate within China and the very fact that there is so much government initiative, at some point we believe that certain technologies, for example, excuse me, those that would have embedded memories with specific encryptions might need to be manufactured in China and that if we didn’t have the capability there we might not have that manufacturing. We might lose the business that we already have for example. So our desire is to continue to grow and if we can take advantage of helping municipalities with their stated goals under a model that’s very advantageous to our shareholders and supports our customers with the regional benefit, it certainly falls into where we are going and what we want to do.

Okay. Thank you for that Russell. And then, just congratulations on pushing above the $1.4 billion annualized revenue rate and but if you look at even just a 10% growth annually from here, you start to get very quickly into that maximum capacity that you have talked about, the available capacity about a $1.6 billion. And I guess what do you see as your opportunities for either organic capacity growth or organic capacity expansion from here within the timeframe that would be able to address customer growth within the next two years plus three years?

So a three-pronged question and then I’ll give a stronger answer as I can for each of the three-pronged. The organic growth for the most part is within our hands. We have talked about the fact that San Antonio we can build out another 50%, 60% with a reasonable amount of infrastructure costs and then on top of that whatever the equipment cost would be at this time candidly the 200 millimeter used tool market is not so readily available though a lot of that at this point is dealing with OEMs that are using some used content and manufacturing tools, with a little bit longer lead times. But we have within our hands the ability to trigger the facilities work in San Antonio at any time. In addition, we have a substantial amount of build out that we can do at the rose 300 millimeter factory in Japan and had just personally with our Chief Operations Officer visited there, worked with the facilities group and looked at the opportunities of growth there. So from the present capacity we could probably increase that by a factor of three. Now that again will not be necessarily inexpensive to do to the facility work won’t be prohibitive, but the tools are expensive. The beauty of organic growth is that’s you already have a certain amount of fixed cost that’s covered, so the incremental fix is very, very small against the full wafer revenue that’s coming in. So, although, you do have some increase in fixed cost will have some additional depreciation, the incremental margin off of organic growth I think is a very, very good model for us to have. And I have stated, I believe it was in Q2 in the conference call, certainly stated in Q1, that at our Q4…

It does. Thank you very much, Russell. And then just one for Oren, Oren, if you could maybe help us with the Panasonic royalty payment, I think this is the first time that we’ve seen this addressed in the cost of goods sold line, if you can just kind of walk through, if is this the structure of how you’re going to be paying Panasonic going forward and you had a credit in your non-controlling interest line and so, I guess, I’m just asking, is this a new baseline for kind of gross margin and royalty payments for cost of goods sold and then what are your future expectations for that non-controlling interest and any `-- just help you can give us there?

Yes. So, like stated before, so basically there is a trigger point called which is a very nice improvement in the TPSCo business, revenues and net profit. These trigger that will entailed, like mentioned a royalty the TPSCo is starting to pay to Tower and to Panasonic. The impact of that is on the one hand increase in the -- from the consolidated P&L point of view increase in the expenses. These are of course tax deductable. So enable to the consolidated financial statement a benefit in the tax and also a benefited in the non-controlling interest and all those three components result in a net benefit to the net profit which you consider that in the bottomline, I mean, very well that, for example, if we compare Q3 2017 to Q2 2017, we have almost the $10 million improvement a betterment. In the revenue line, which by model or by our 15%, 20% net profit margin incremental today resulted maybe $2 million better net profit, but it resulted $5 million better net profit. So that impact -- that positive impact is these $2 million, $3 million. And to your question, yes, you should expect it going forward the same continued benefit and in order for modeling or for focusing point of view I suggest to actually look at the nine months year-to-date P&L which shows in our reports $1.4 million income expense and $2.2 million non-controlling interest and this is a run rate that pretty much should sustain and that’s very good news to our investors. I believe that actually in context expenses are the order of maybe $0.5 million per quarter instead of previously much higher and the same for the non-controlling interest.

Well, that’s definite improvement. So thank you for that all that detail. And so just to be clear, structurally our taxes are likely to be in this kind of $0.5bmillion a quarter, $2 million-ish run rate and that non-controlling interest is going to be significantly low then going forward?

Yes. Yes.

Okay. Good. Thank you.

You bet.

The next question is from Quang Le of Credit Suisse. Please go ahead.

Hi. Thank you for taking my questions. If I could come back for -- to that TPS revenue and how you got a profit out of that, if you could explain to me, because I believe you grew revenues in TPSCo and then it resulted in higher cost of sales, right. And for some reason I believe your margins -- gross margins are lower, but you still ended up in profit. Could you explain it in more details, I am still confused of that, sorry about that?

Okay. So from a consolidated point of view our payments by TPSCo of royalty are about the COGS expenses, right, in the cost of revenue. So obviously an expense in the cost of revenue line is reducing the gross profit, reducing the operating profit, on the one hand. On the other hand this is our tax deductible expense for TPSCo in Japan. Now the amount that is an expense in the COGS line, let’s call it 1x, okay, which is the amount payable to Panasonic is actually half of the total amount TPSCo is paying, right, because TPSCo is paying let’s say, 1x to Panasonic and 1x also to Tower. So those 2x are now in expense in TPSCo P&L. Now assuming that the tax rate in Japan is 30%, so this gives a benefit to the tax line of the group of 2x time 30% which is 0.6x benefit on the tax line.

Okay.

And now you have a 2x less 0.6x, so after tax it’s 1.4x times the minority share which is 49%, you have a 0.7x benefit to the non-controlling interest, so all-in-all you have 0.7x benefit to the non-controlling, 0.6x a benefit to the tax line, so together it’s 1.3x less the 1x of the expense in TPSCo books to Panasonic, so you have a net positive impact of 0.3x. So the benefit in tax line and in non-controlling interest line is higher than the downside of the COGS and this brings what I indicated to Cody’s question $2 million to $3 million net impact this quarter.

Got it.

That’s the 0.3x -- 0.3x, yes, is the $2 million, $3 million.

Is the 0.3x is it $2 million basically.

Yes.

All right. Thank you.

Thank you.

Thank you for explanation.

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

Yes. And congrats as well on solid progress. Just a follow-up question on the capacity, the internal versus external, I know you are going through detail in Q4. But I’m kind of wondering in terms of how you think about at least qualitatively return on investment versus, say, the incremental gross margin or the incremental margin that you would get from expanding capacity organically, did you kind of balance the two in terms of how much CapEx is needed to expand capacity internally versus, say, buying capacity through a -- through one of these kind of innovative joint ventures that you’ve done in the past? How do we think about that? How does the Board think about that as well?

Yes. So basically like, Russell mentioned, for example, purchasing of the Panasonic three Fabs and Maxim San Antonio Fab, it actually cost us a very minimal amount 1000 wafer, because even if you consider Panasonic was 8 million and Maxim 40 million, so divided by 25,000 wafer demand for San Antonio or a higher of course the amount in Panasonic, it come out to be a very minimal amount of less than 1 million to 1000 also -- if you also consider what we got. But when you need to now buy new -- not new used equipment in the market from the OEMs or even from other dealers, you usually in the history if you check our financials it cost us between $3 million to $5 million the 1000 wafers and created an ally over the 12 years to 18 years. So, obviously, it’s a good -- it’s good to buy CapEx for $3 million to $5 million for 1000 and have ally of 12 months to 18 months, but it’s even better to buy it at almost zero, which is the deals that we did for the capacity expansion. Now, Russell, also now mentioned about two possibilities that to buy not that we need not the capacity tools, we also need to invest a little bit in facility which is for San Antonio expansion and for Uozu and then it will cost a little bit more than -- on of little bit but more than $3 million to $5 million per 1000 could cost like you mentioned between $5 million to $10 million. Still it is very good ally of a 18 months to 36 months. But of course the best is to buy it through an acquisition of an existing fab with our long-term take or pay commitments from the seller. So this is the first priority of what we are trying to do and like, Russell mentioned, if we see that it doesn’t happen we may consider these internal capacity expansion, which is higher cost.

Yeah. Thanks for that. And just a follow up and I know that you have more detail…

Rajvi I can sense something, Rajvi.

Yes. Go ahead, sorry. Yes. Go ahead.

So what I’ll refer to with our history, we’ve been able to in the past do bulk deals of buying tools. So we bought almost an entire factory of tools at one point, which greatly reduces the cost. Now that really is very, very conducive to organic growth. If you can buy tools that you’re going to buy 30, 40, 50 tools at one time, you can then buy them at a very, very good cost and then the organic growth makes very, very big sense. If we are buying everything through OEMs then it’s a bit higher cost, so it really depends a little bit on to availability and what the deals are. And what I stated was that, in all instances the triggering would be a two prong triggering that first we would go ahead and build out facilities, normally it would be done in a modular way and then you would upon need bring in the equipment, while you still have the ability to possibly take advantage of a big sale of a different fab. I am sorry to add that I just wanted to put a little more color there.

No. I think that’s very good. And I am just trying to put some numbers around it, I think, in the past you had mentioned for San Antonio that it would be capped at maybe $10 million per 1000 wafer, so if you were to increase capacity 20,000 wafers that would be $200 million and if say you sell that those additional 20,000 wafers at $700 a wafer you might get a $200 million revenue opportunity, but at 20% free cash flow margin it would take five years, six years to recoup the initial CapEx that we acquired?

Yeah. Everything you said, it was true and correct until the 20%, because you have to know that this will be an incremental free cash flow and the incremental -- our incremental free cash flow is the same like our incrementally EBITDA or a gross profit margin which is about 50%, 55%, maybe.

50%. Okay. So then it would cut in maybe in half.

So it’s in two year, so the $200 million additional revenue that you calculated will result in $100 million additional free cash flow also.

Free cash flow and so the -- to recoup the CapEx might be two and half years to three years.

Yes. You’re right.

Okay. All right. Very good. And that’s it for me. Thank you.

Thank you, Rajvi. Good questions.

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

Hi, Russell, Oren. Thank you for taking my questions. I apologies I am just boarding a plane now, so background noise could be high, I am going to keep my question short here and get in the queue. I guess, my first, Russell, you gave us some good detail on all power management initiatives going on. I wonder if you could help us understand the cycles here. How long the designing cycles are, looking by markets and by voltage levels and whether we are going to see an acceleration in growth in that power management segment you are doing so well right now, any detail you can provide looking to few quarters that would be great?

It really depends a bit on if the customers -- an existing customer that’s designing in something in addition or if it’s a brand new customer. Our platforms have been very modular platforms and in fact modular allows person that’s familiar with our designs to without a lot of work add certain features to the PDK that they’re very familiar with. So for an existing customer it’s basically for their first tape out, however, long to order the mass set, it’s a number of weeks to run it through the factory you are dealing with three months, so you are basically from the start of the design until they see wafers for prototypes and can start seeing the market you’re dealing probably on the five-month, six-month type of the timeframe. And that’s with an existing customer that’s familiar with you that has the market that they want to be serving. If you’re dealing with someone that doesn’t know you at all then the typical from a design win until you really have something out on the prototype you are adding anywhere from three months to six months to it in the area of power management. The power management flows for the most part not very heavy layer flows so they move through the fab fairly quickly, you’re dealing somewhere between that the 300 millimeter it’s 17 also very, very low mass count and with some of the mix signal power now up through at most 30 layer. So you’re not dealing with a very, very long flow, so the cycle time and the fabs are fairly quick. On power management it has been a very, very big growth market for us and I believe it will continue that way. We have stated at the beginning of this year that all of the business units, absolutely we’d be seeing above 25% year-over-year growth and with the RF we started by saying, we would mid single-digit which we changed to say that structural optical markets of the power management did grow at that type of rate and we haven’t given any guidance for -- spoken about ‘18. And I would invite is and we will talk about this in a little bit, have our Investor Day coming at the end of this month, we will get into some very strong specifics on all of the offerings and maybe then you’ll share a great amount of the excitement that we see in our offering.

Okay. Russell thanks for those details and since I am getting in the plane the sound is getting bad. I will jump out of line and maybe call you later. Thanks for the time.

Thank you. Bye-bye.

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

…for taking my question.

Hi, David.

First question is, you mentioned that you received an $18 million payment from Tacoma, could you give us an idea about what you think the -- how many more payments that you might receive or what the total payment might be or when you might receive further payments?

So what I stated in the, as I talked about the quarter, hasn’t changed, the next payments will be defined in the definitive agreement. How much would we expect that’s -- I don’t know I really want to put that out into the market. But you could say that we are transferring licensing certain technologies and then we’ll have a certain capacity in the factory. The $18 million is the first payment. You would think that other payment would be on that same order of and that there would be multiple.

Okay. And as far as your revenue guidance goes for the fourth quarter, I think, it was up $3 million or 1% sequentially roughly last year, I think, you had like 4% sequential growth and perhaps $12 million or $14 million worth of revenue growth. I was wondering what you were seeing in the marketplace as far as why this year’s growth in the fourth quarter a little bit less than last year?

I’m not seeing much difference in the marketplace. We have customers that are very excited and things that are moving. On any given quarter you have some certain inventory corrections. We have still very, very big demand within the -- especially within the optical markets. We are changing mix the Newport Beach to be able to have more silicon-germanium capacity. So I don’t think there’s anything specific about Q4. It is very difficult to look at a 4% versus 1% and think that there’s a difference year-over-year especially against a different base of revenue. But I don’t see anything specifically different in the atmosphere, in the environment and if anything I see tremendous excitement going forward, because of a lot of new initiatives maybe more than we had coming into this year. So I don’t see anything specifically different other than, as I stated, we are by design moving from what would be price pressure lower value products within some of our RF portfolio to our higher margin value add a mix and that’s the only difference and that’s a cognitive decision from ourselves.

Okay. And could you just give us an idea roughly what the size of your silicon-germanium business is now as far as the base goes? What would you expect the growth rate to be over the next year or so?

Sure. We have a demand right now that’s probably if I look at the -- at our forecast the demand is presently sitting at least 30% to 40% higher than our capacity. So that’s why we’re increasing that. We’ve said before that our optical business was about -- what we said -- we said we announced 30% plus minus was RF and of that circa 10% was the infrastructure, so you could -- now there is some mobile that’s silicon-germanium as well. But if you were to look at that and you would say that the 5G is sitting then somewhere about 140 just from previous numbers.

140 million annually?

That’s from previous numbers. Again, I haven’t broke it down just from what we have said in the past, we talked about 30% was RF and about 10% of it was infrastructure.

Okay. Thank you very much.

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

Certainly, so, again, thank everyone for your interest in the company. We should extremely exciting -- excited about where we are, where we are going. We have on November 29th an Investor Day at the NASDAQ market site in Times Square at New York. We really invite everybody to come there. We will have more time to share and what we’re excited about. You will have presentations there from the President of the company responsible for the BUs, from Marco Racanelli responsible specifically for the RF and HPA but he will talk about a variety of different platforms, operations, Oren will speak, obviously, I’ll be speaking there, but you also have opportunity to hear from and interact with our Chairman, Amir Elstein that is our semiconductor veteran having been an executive at Intel Corporation. So I think it will be a very good day and we will have much more time to interact, a good portion of time for Q&A and we will be able to get into details there. That’s nominally we will be able to share our excitement for our future, which we really have. The activities we are doing and I’d mentioned I believe in the PR about really certain activities that we are doing that are very, very strong disruptive technologies with leading partners. These technologies again when you work on something like that you don’t have 100% surety that it is going to pan out but the fact of having leading customers partnering with us on disruptive technologies, it does work and it will take off like crazy and if you have a standard roadmap that is customer partnered for advancement, multiple disruptive technologies, a new initiatives to increase your served market, it is a very, very exciting future forecast. So, again, in closing, thank you very, very much and look forward to see everybody that can possibly be there in New York at the NASDAQ on November 29th. Thank you.

Thank you. This concludes the TowerJazz third quarter 2017 results conference call. Thank you for your participation. You may go ahead and disconnect.