Ladies and gentlemen, thank you for standing by. Welcome to the TowerJazz Fourth 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, February 22, 2018. 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 fourth quarter and fiscal year 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, and thank you all for joining us today. 2017 was another rather significant year for the company with palpable high-performance across all industries further cementing our position as the global specialty foundry leader for providing us with the strongest financial position in the history of the company. We presented another year of record revenues at $1.39 billion representing year-over-year growth of 11% excluding the Panasonic and Maxim's contracts which are committed and stable, 2017 annual revenues represent year-over-year business unit based organic growth of 23% We also recorded our highest ever EBITDA of over $425 million and a record net profit of $298 million. Our operating margins continue to increase in 2017, reported 15.8% operating margin and 30.0% margin a 130 basis point increase over that of 2016 respectively. This was the result of utilization and optimization of product portfolio mix for which we expect further improvements in 2018. Our balance sheet is strong approaching $0.6 billion in deposits and short-term cash investments having been built throughout 2017 by a company record free cash flow. Oren will cover our financials for the year and for the quarter in great detail in a few minutes. Our 2017 performance is evidence of the strength of TowerJazz's business model in growing both organically as well as our ability to identify and pursue opportunities on an ongoing basis for company expansion and growth. Our success is based upon providing our customers best-in-class specialty technology offerings providing the right platform to support them within the trends that are now driving the world namely energy efficiency and seamless connectivity and sensors as the foundation of smart systems. We continue to increase our competitive advantage both existing and new markets by being responsive to the present and future need for diversified customer base. In…

Thank you, Russell. And welcome everyone. Thank you for joining us today. We start by providing the results [P&L] results highlights for the full year 2017 and for the first quarter. And then discuss our cash flow report and balance sheet. Financial results for 2017 are the best financial results we have ever achieved including record net profit and cash flow results. Record revenue, gross profit and record profit in EBITDA. Revenues for 2017 were a record of $1.39 billion reflecting an 11% growth as compared with $1.25 billion in 2016, and reflected organic revenue growth of 23%. Growth and operating profit for 2017 were a record of $354 million and $220 million, an increase of 17% and 26% as compared with $303 million and $175 million in 2016, respectively. EBITDA was a record of $425 million, representing 31% EBITDA margin, an increase of 16% as compared with EBITDA of $367 million in 2016. Net profit for 2017 was at a record of $298 million reflecting 46% year-on-year net profit increase resulting in record basic earnings per share of $3.08 and record diluted earnings per share of $2.90. Excluding two onetime items related to tax which I will describe in greater details later, net profit for 2017 was $203 million, reflecting 15% net profit margin in 2017 and reflecting 36% incremental net profit of comparable with $154 million recorded in 2016 excluding San Antonio acquisition gain. Net profit for 2017 included two specific one-time items in relation to tax. The first income tax benefit is $82 million resulting from deferred tax assets realization following the release of evaluation allowance we previously had over the Israeli net operating loss carry forward allowance for tax. As of December 31, 2017 such allowance amounted to approximately $1.2 billion and they can be carried…

Thank you, Oren. Before we open up the call to the Q&A session, I would like now to add general and legal statements to our results and with regards to statements made and to be made during this call. Please note that the fourth quarter and fiscal year 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 contain 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. First question is from Cody Acree of Drexel Hamilton. Please go ahead.

Thanks guys for taking my question and congratulations on a strong 2017. Sure. If we can go back to comment you made in your press release, I think the quote was realization of several key initiatives that would be a foundation to long term growth. You talked about your organic capacity expansion, obviously up the Chinese to become a project. Are there other key initiatives that you were alluding and how does that relate to the long term $3.5 billion target that you laid out at the Analyst Day?

Yes. There are multiple things, a lot that were press released. So the initiatives that we did over the year was or was over that really took fruition in the past year with the customers were to a very large extent on impact for 2018 and 209, those activities that I summarized for 300 millimeter. I mean if you look at the CIS, the column stacking for example. The back side illumination activities in addition to what's in there now were very, very strong initiatives. Now the column stacking at BSI will not be 2018 revenues but we have a very strong activities that have happened there that will continue in I think outstanding performance within the image sensor for a long period of time. What we've done within the imaging side and the lighter activities, very, very strategic. In the power management, the activities we are doing on the up to 16 volt BCD technologies with lower mass count, those are type activities that add tremendous benefit in that both the customer and ourselves sharing in higher margins. It's a very, very big step function difference on chip sizing and performance. The RF capabilities that we talked about that we are ramping in Uozu. So those are some of the strategic initiatives that really took tremendous customer actions in 2017 to drive what we are forecasting in the 2018. And certainly the Takoma project we had stated back in 2016, the importance that we saw in China and to announce that project and we've stated as well that there is a variety of other things that we are pursuing. But the Takoma project, the 8 inch back side illumination project that we have there. The overall Chinese growth is both tactical and strategic and we think very, very important.…

Well, it may be true that, Russell. You laid out that very aggressive $3.5 billion target; you didn't give obviously timing on that at the Analyst Day. But a lot of the program that you have laid out at least that have been released, sound like they are kind of block and tackling organic initiative, maybe very aggressive but still relatively organic. So, I guess, for a $1.5 billion revenue company to $3.5 billion, can you walk us through the mindset of how do you get to $3.5 billion and why $3.5 billion, why not $2.5 billion or $4 billion? I mean why you settle on that number.

Very specifically we have a series of board meetings, within these board meetings obviously there is always the financial board meeting and audit committee meeting each quarter. But we have very strategic meetings that we call content boards that cover a variety of issues. One is M&A initiative and landscape and we outlined at that meeting a variety of activities that we were pursuing, some at beginning stages, some at later stages. But with all the opportunities that we thought were very realistic that would enable $3.5 billion, in addition to the organic growth that we were talking about. So the organic footprint that we've talked to, if you include Takoma project which you could consider organic or having done a very, very strategic business model, probably puts us somewhere between a $2.3 billion and $2.5 billion. And then the other initiatives that we are looking at where we would increase our served market on market that are adjacent to what we have right now, hence advancement meaning predominately serving a variety of existing customers in areas that we do not presently present. And hence the ability in our mind and from some customer inputs to somewhat rapidly grow market share in a new served market. That is what we have as the basis for the $3.5 billion. So the $3.5 billion wasn't just a target pulled out of the air. It was number that we had discussed on paper with the board that we thought was reasonable to get to with a variety of activities that we are pursuing, have pursued and will continue to pursue.

That's very helpful. Thank you. And then lastly, Oren, could you just talk about use of cash going forward. You obviously have these organic initiatives you're doubling of SiGe, what kind of CapEx or are we looking at for 2018 and then what your thoughts are now that you are - I think you are annualizing getting into a point where dividends and buybacks might be a possibility. Can you just talk about your use of cash wins?

Okay. So with regard to CapEx we so far don't change our previous focus which is about $168 million -$170 million total CapEx per year. And this is our standard run rate and of course Russell mentioned in his part about possibility to increase capacity of San Antonio and other possibilities and of course once we will announce that such plan was done, this will be on top of the $170 million and we will be very happy to use for that, the cash usually it has IO have 1.5 and 2 yield from such CapEx investment. With regards to dividend and buyback, we believe that the best use for our foundry the growth opportunity exactly what Russell spoke before, all kind of acquisition and other transactions that we consider all the time and we want to achieve those this very aggressive target of $3.5 billion for that of course like Russell said $2.2 billion, $2.3 billion is maybe internally possible. We including that Takoma and San Antonio expansion and all the other but the rest should come from acquisition. And for that we want to have - we need to have this fund.

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

Yes, thank you. And thanks for taking my questions. Question, Russell and Oren on the near term. So Q1 revenue is implying to be down about 9% sequentially. If you look at last year in March our revenue was down 3% sequentially. So it was greater than seasonal at least with respect to last year. And on year-over-year basis revenue is down about 1.5% year-over-year. And so this is kind of now several quarters in which growth rate has been decelerating on a year-over-year basis and now entered into negative territory in Q1. So wanted to maybe you could elaborate on a kind of what happened in the quarter in terms of the seasonality effect and I know you had mention organically you are growing - you grew 23% year-over-year in 2017 but the overall growth rate has been decelerating since Q4 of 2016. So maybe you could talk to that as well though? I would appreciate it.

Certainly. So the first point is your question about the seasonality. You are correct in Q1 of 2016 we saw much less of the seasonality that the entire industry saw. So certain areas that we were involved in then were seeing some surges and market demand outside of seasonality. And we were going in market share in certain areas that allowed us to curtail seasonality. I think if you were to look at the industry itself, and if I look at the industry I look at the largest foundry in the world, I think that they were as well in Q1, 2016 on the area of about 10% down quarter-over-quarter. We were somewhere about 2%. And I think right now if you look at the biggest players in the world they are down 10% quarter-over-quarter, we are down 9%. I don't think there is any big difference. But you are correct. We did mitigate more of the seasonality through certain areas that we are involved in that had very high demand at the beginning of 2016. I don't see that as being a problem at all. If you talk about growth decelerating, we had 2016, 30% organic growth. We had a 2017, 23% organic growth. I don't know that one can maintain a 30% organic growth forever. Some of the organic growth really will tail out unless you are increasing your served markets. Certainly 23% is probably more than any single segment that we are involved in has grown over the past year. So we are outgrowing markets with an area that we are in because we are growing market share within those areas. And part of the answer to Cody's question, without getting into details is part of what we are focusing on for the $3.5 billion as I…

That's very helpful. Oren on the gross margins, again you don't breakup the stock based comp across a different lines although it's still small. But it's basically implies kind of 25.2% gross margin in Q4. I am wondering how you are looking at gross margin going forward? Russell mentioned that you should have mix shift positive impact with SiGe, are there any other additional tailwinds that you are seeing on the margin front or conversely any headwinds other competitors or at least some folks have talked about higher wafer pricing for 200 millimeter for rollover first. So I was just wondering if you could talk about the puts and takes on the gross margin as we go - progress throughout this year?

Yes. You are correct about the SiGe observation that certainly like Russell indicated this should improve our gross margin, while the capacity [Indiscernible] stays the same, we will introduce more SiGe wafer, we are almost like Russell said, and almost doubling the capacity of the SiGe and the gross margin will improve from that. And another factor is the Uozu introduction. So we are ramping up in Uozu for mainly in the second half of this year. The Uozu product which is obviously sets 300 millimeter a better for margin point of view in the average than other fab. So we will have also benefit from that aspect. With regards to the silicon cost, we succeeded through a cost - through qualification of other vendors to restore situation that it almost knowing fact on us and our cost are not going up almost in any manner because of that indeed trend of silicon price increase. We found alternative suppliers and alternative materials and overall we don't have any cost increase.

Okay, good. And last question for me. Last year you talked about the RF business kind of growing mid-single digits and then it ended up growing 10% year-over-year, and then you had mention the other businesses power management, sensor and mix signal kind of grow in 25% year-over-year. And so I am wondering if you could provide forecast for this year as best as you can base on these growth drivers. Because you've outlined kind of going from 1.5 to 2.2 to 2.3 organically so want to get a better sense, you are talking about return on investment as 18 months so that's going to be sometime relatively soon. I was wondering if you can elaborate on some of those growth drivers this year.

Probably organically this year we will sit somewhere in the - as a company organically somewhere in the low double digits that's what things are rolling up to look like at this point. RF this year should be somewhere again around 10% but within the RF one of the big things of RF is the silicon germanium growth that is probably be out somewhere between 35% to 45%. And what that matters are really that we had stated back at the beginning of 2016 and it hasn't changed. We are not extremely interested to compete on low margin RFSOI. If you look at our RFSOI, it has a very, very good selling sale price because of the substrate itself is very expensive. But the margin isn't necessarily a fantastic unless you are doing the higher end products. So when I talk about around 10% RF growth, the RF margin would grow much more than 10%. But the revenue itself were replacing some high ASP , average selling price products that aren't necessarily high margin with very high margin that because of the substrate is now taking out at a $300 to $400 level, you are dealing with a similar selling price but a much higher price per layer.

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

Hi. Thank you for taking my question. And so I'll have the question - almost all my questions were answered right. But I would have a question to your tax. So basically you do said that you will benefit going forward from lower taxes in US and on the group level then what do you see the tax rate going to be in 2018 and 2019?

So I believe the overall total will be close to zero because on the one hand we have the tax reduction in the States from 35 to 21 and we will also have the tax program that we are launching, the previous quarter we spoke about this in Japan about royalties and other expenses paid from TPSCo to Japanese JV to Panasonic and Tower. And in Israel it is obviously zero until we will make accumulated profit of $1.2 billion. So I believe that tax payment will be very small and maybe one digit meaning less than $10 million for the year. So less than may be $2 million a quarter. And the total tax expense will be a little bit higher but they will be non-cash. But overall very, very small amount.

I see. And then when could you elaborate more on your wafer supply, you said that you found alternative wafer supplier. Did you have to qualify all of them and when you said you found alternative wafer supplier, could you specify what your fee is? What would they be?

Yes. We certainly have to qualify every alternative supplier. And that's an activity that was not an immediate activity; it's something that we've been working on for many years. And we've been pretty successful at it. So although there is from some people standpoint a shortage of silicon, we are pretty much that everything taken care of, reserved and on contract. And we have never missed any wafer starts because we didn't have available silicon for those starts. Our alternative base is really in many, many different areas. Some now being qualified in China.

And these are all on 200 millimeters, am I correct?

For the most part 200 millimeters because most of our volume is 200 millimeter, 300 as well.

You too have 300 from China as well.

No. We have 300 millimeter. I honestly don't know if we have any 300 millimeter substrate from China. I really don't think so. But I am not sure.

Thank you.

And your question was about the 200 millimeter the China substrate. So definitely the 200 millimeter is coming from China. But for one specific flow, I really don't know of any 300 millimeter from China at all.

The next question is from Lisa Thompson of Zacks Investments Research. Please go ahead.

Hi. I just want to do follow up a little bit on your statement that you said this year is going to be heavily backend weighted. Could you describe perhaps in order of magnitude what is causing that? Either by product or technology.

Really two major things as I talked about very strongly in the call. We are anticipating forecasting a substantial ramp at 300 millimeter. The ramp beginning now so any time we have a ramp, every quarter is more than the other. So we would expect the second half of the year to be significant amount of 300 millimeter revenue. On the others as I talked about was the silicon germanium capacity increases that we are doing. So as we from now in the qualification to the end of the year or into the third quarter as we double the silicon germanium capacity obviously that allows higher revenues. And then we have as well an additional 6,000 IDM wafer that we are adding to Migdal Haemek, and that's being done as we speak and that will go then through Q1, Q2 until that's fully installed. So you have then the additional capacity coming out of fab 2 for that additional 6000 IDM wafers.

Okay. So it's more a factor or production rather than customer demand for some particular products that are coming online?

They both go hand in hand actually, right. I mean it's the ramping in 300 millimeter is as per customer demand in 300 millimeter. The 6000 wafer addition of IDM activities is also customer demand related. So I am not trying to be up two sides. I don't know how to separate each one but certainly its capacity that's driven by certain people using the capacity. We add capacity already in Uozu. So it's the demand of the customers that's driving the revenue growth.

Okay, great, thank you.

In the case of the silicon germanium it's really a case of capacity and demand going hand in hand.

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

Good morning. Thanks for taking my questions. I am going to follow up on the last one year. I get interrupted during prepared remarks so I may have missed your comments Russell but specific to the acceleration in the second half of year from 300 millimeter; did you specify which product or products were driving that?

I did.

Can you repeat what those are? Sorry about that.

It's probably about 15 minute portion of my script. But I'll go ahead and summarize it.

Are there a 10 second summary on that one?

Yes. It was CMOS image sensor in particular we talked about the high end digital SLRs, cinematography and broadcasting. It was within RF, it was on RFSOI and [Indiscernible] and within power management it was the 5 volt ramping presenting and we said platform a BCD platform 65 nanometer with up to 16 volt capability ramping in the second half of the year.

Okay, that's helpful. I did want to follow up on the combination of 1A and switches. How prevalent of an architectural shift you expect that to be going forward? Is this relatively small portion? And we could see a pervasive across all the leading edge handsets? Any thoughts on that.

I think it will really coming into a fact of is it cost productive through combine it versus having smaller 1As and a separate bill. So but right now we are seeing a lot of interest by people. We've certainly taped down a variety of products and we've multiple customers sampling a variety of products both at 200 and 300 millimeter. There is a very big provider that's very strong into a combined switch L&A right now. Provider meaning one of those I would say within our customer's base.

Okay. Maybe a couple of quick questions for me. You made a brief comment on - to comment it sounds like you are in process negotiating something there. Sounds like you would prefer us not to try to include anything in your model at this point. But if you can give us any updated thoughts on how to think about the scale both of the kind of the interim consulting or service related revenues and then any expectation and timeframe for wafers coming out that would drive some revenues?

So we actually have I think a very, very shunt a band for that capacity presently that would be substantial revenue, would probably come online within 2019. And be steady throughout the entirety of the 2020s. So I think that's the timing that we would look at from the demand that we are seeing right now would be a round in 2019 and hitting probably entitlement volumes in 2020 and staying that way for a quite long time. The numbers that we've always said from Takoma you could look at. I mean it's - it would give us 20,000 wafers per month of 200 millimeter capability. So we never gave a specific forecast on it. But that would be on a totality or you can do the calculation in terms of the sale price would be per wafer. As far as the contract it and what would be getting out of the contract we had announced that the first payment was gross somewhere about $20 million net of tax is I think I was [18] that we got on that. And the rest of the payment schedule we've not really said what it would be but there would be several more technology on the transfers as well as milestones of building up the facility. And then certain other servicing agreements that would be on a year-over-year basis or after. Timeframe I do think that that Takoma project is moving nicely. And I would expect that in Q2, Q3 timeframe that pretty much everything is settled and done.

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

Certainly. Again, as always really do very much thank our investors, our analysts for their interest in the company. Very grateful to our customers for trusting us for an integral part of their business. Company has been a very good trajectory and in an incredible position that we never had before as far as sitting on a very good financial base to allow us to move in several direction that maybe weren't available for us before to increase our served market. As a nicety, we would really look forward to seeing any and all of you face to face at upcoming conferences on March 8; we will be at the UBS Conference in London. March 12, at the Roth Conference in Orange County California. At March 14 at the Susquehanna Annual Technology Conference in New York. So anyone who would like to sign up for those conferences, we really enjoy the one-on-one, face-to-face time with you. And obviously any follow up to this call as per normal we are very, very happy to do. Also, our 2017 Annual Report is now available on our website. It contains a message from our Chairman and message from myself; from our CFO, from our President. It contains sections from each of our business units, general managers outlining their vision of their business, of their markets. And concludes with the message from our Head of the Human Resources, talking about different initiatives we do to inspire our employee base and also outline our environmental social activities in order to show our value as being a global citizen, and how we value being a global citizen. With that I thank all of you for your participation. Please take a look at the annual report on the website. I think you would enjoy it. I think it's an interesting report. Certainly has some very pretty graphics in it. So thank you very, very much.

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