Ladies and gentlemen, thank you for standing by. Welcome to the TowerJazz Fourth Quarter and Full Year 2019 Results Conference Call. All participants are currently present in the 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 18, 2020.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 Levy, Vice President of Investor Relations and Corporate Communications. Ms. Levy, please go ahead.

Welcome to TowerJazz Financial Results Conference Call for the Fourth Quarter and Fiscal Year 2019. 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 Form 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.Please note that the fourth quarter and fiscal year 2019 financial results have been prepared in accordance with U.S. GAAP. The financial tables and data in today’s earnings release and in this earnings call also include certain adjusted financial information that may be considered non-GAAP financial measures under Regulation G and related reporting requirements as established with the Securities and Exchange Commission. The financial tables include a full explanation of these measures, and the reconciliation of these non-GAAP measures to the GAAP financial measures.Now, I’d like to turn the call to our CEO, Mr. Russell Ellwanger. Russell, please go ahead.

Thank you, Noit. And thank you everyone for joining our call today, discussing our fourth quarter and full year 2019 business and financial results, as well as 2020 and beyond main growth drivers and supporting activities.Fourth quarter revenues were within our guidance at $306 million. We concluded 2019 with revenue at $1,234 million generating a net profit of $90 million with free cash flow of $119 million. We continue to maintain a healthy balance sheet and our financial situation is strong. We believe to be well positioned to participate and leverage the expected markets recovery and improving business trends.Oren Shirazi, our CFO will provide a more in-depth review of our fourth quarter and full year 2019 financial results upon the conclusion of my remarks.TowerJazz entered 2019 knowing Q2 will invest new phase for our contract with Panasonic, one which reduce circa $19 million annualized revenue against the Q1, 2019 revenue run rate. Otherwise, the year began with a very positive outlook with good backlog at all major activities of all of our business units. This outlook soon dampened due to the trade war and various inventory correction implications. With no apparent market share losses, these corrections resulted in a 25%, 18% and 25% second half 2019 for second half 2018 reduction of Silicon Germanium, mainly data center, discrete and industrial sensors revenue respectively.However, due to strong activities, in other segments, we posted a year-over-year organic revenue growth of 5% due to strong, long-term customer partnerships with a focus on growing analog and application markets. Customer forecasts and present orders indicate good overall 2020 growth wrapping sequentially through the year, which should result in significant second half 2020 for second half 2019 financial performance.Accordingly, we expect a year-over-year revenue growth in 2020 with low double digit organic growth achieved through high…

Thank you, Russell, and welcome, everyone. Thank you for joining us today. I will start by providing the P&L highlights for the year ended December 31, 2019. And for the fourth quarter of 2019 and then discuss our balance sheet.Revenues for 2019 were $1.23 billion as compared to $1.3 billion in 2018. Non-organic revenue was $111 million lower in 2019, of which $70 million are attributed to the March 2019 renewed Panasonic contract. This was offset by a $41 million increase year-over-year in organic revenues reflecting 5% organic growth. We define organic revenue as total revenue excluding revenue from Panasonic and revenue for Maxim in the San Antonio Fab.Gross operating and net profit for 2019 were $230 million, $87 million and $90 million respectively, compared to the $293 million, $155 million and $136 million in 2018 respectively. EBITDA for 2019 was $299 million as compared to $362 million as of 2018. Analyzing the annual margins, we see that the revenue mix and the cost structure of the company improved. And we had recorded significant savings which partially mitigated the March 2019 previously announced renewed Panasonic contract impact and then on organic revenue reduction. For example, we see that against the $111 million lower non-organic revenue net margins was lower only by $46 million, reflecting $65 million betterment resulting both from the higher $41 million organic revenue, as well as from an improved revenue mix and cost structure.Revenue for the fourth quarter of 2019 was $306 million as compared to $334 million in the fourth quarter of 2018. Non-organic revenues are $36 million lower in the fourth quarter of 2019, of which $23 million are attributed to the March 2019 renewed Panasonic contract. And are offset by $8 million increase year-over-year in organic revenues reflecting 4% growth. Revenue for the third…

[Operator Instructions]The first question is from Mark Lipacis of Jefferies. Please go ahead.

Hi. Thanks for taking my questions. I had a couple. The first one on the outlook for double digit organic revenue growth. Does that exclude Maxim and Panasonic? And can you give us a rough estimate of how big those were in 2019?

Yes, Mark. We said that the focus for low double digit growth is for the organic revenue. And in addition, we said that we forecast overall growth for the entire revenue. About the size of it, you can take the $1.23 billion revenue that we have. And you should deduct from it in order to reach the baseline of the organic revenues. What we said in the past, as renewed in the March 2019 contracts from Panasonic, it is between $70 million to $85 million a quarter of revenues from Panasonic. So if you multiply by four, you know the number of the Panasonic. And about Maxim, we didn't say in the past. We did say in the past that when we acquired the San Antonio facility its revenues were at that point at a capacity of $150 million. And we did say that Maxim at that point was about 45% -50% of realization of the fab and we said that it's growing gradually down.So one may calculate that it's somewhere below 70 in a number that. Of course, we don't want to say because it's not the public domain.

That's fair enough. Thank you very much. And maybe for, Russell, can you give us a sense of where capacity utilization is at your customers or perhaps in the competitive environment? Do you have a sense that there's a lot of excess capacity at the bottom of this downturn? Or is it - would you characterize it differently? Thank you.

At our customers other than the TOPS group, most of our customers have no internal capacity for what we make for them. In the TOPS group, we certainly the customers are IDM that transfer flows to us. Where they're at on their utilizations or the overall capacity that's something that specifically track. But for the most part, for the IDM customers that we serve, the flows that we serve for them are somewhat exclusive at our factories. So I don't think that their capacities have or utilization rates have too much to do with what we make for them or with demands.In the TOPS group, there was an overall decrease in discrete demand last year. There was a very big inventory correction after multiple years of discrete growth. But -so I don't think that that has so much to say with it. I believe that in China right now, I think that there's a good amount of 200-millimeter capacity. I don't think that there's very much 300-millimeter capacity available.

Next question is from Cody Acree of Loop Capital. Please go ahead.

Thank you. Thanks, guys, for the questions. Could we just talk a little bit about your, Russell, you made segment forecasts and segment trends, but we've -especially in comps and the structure this silicon germanium ramp you've obviously installed significant amounts of capacity and yet it seems like the order flow from that of silicon germanium customers just haven't -either haven't had the end markets or is there something else going on? I just-if you can speak to the disappointment, I guess it's just a few million dollars but still low expectations for both December and March.

I am sorry, please. What is below expectation over margin?

Just revenue guidance.

I don't think that the Q1 guidance is at all below expectation. The certainly Q4 was 306 as we stated; the mid-range that we had given was 312. So it came in at 306 but that's why we give a revenue range. Probably larger impact in Q4 wasn't an issue of silicon germanium as far as what was happening, why it was in the second quartile instead of being at the midpoint, but in the discrete market, discrete or short flows, those are mainly to a great extent turn business within the quarter. And as I stated the fourth quarter was our lowest quarter in multiple years in discrete market.If I look at the Q4, 2019 and Q1, 2020, so there's already quite a substantial increase in the TOPS business from Q4, 2019 into Q1, 2020. But the, so I think that more deals with that and as stated by Oren just a few minutes ago and multiple times, the revenues from the Panasonic contract are within a range. We don't control what that range will be to a great degree. So you have a top and bottom which is the reason that we ourselves give a guidance range. So I wouldn't say that Q4 in my mind is an expectation was in the second quartile, but it wasn't related to not understanding what silicon germanium would be. Silicon germanium is a very long flow. It's for a quarterly forecast. It's very difficult to miss a silicon germanium forecast.Now the other question is silicon germanium as a whole and that's a very, very different question, but related to Q1 being second quartile. I'm sorry Q4 being second quartile rather than mid-point although again that's why one gets a range. It's not at all related to silicon germanium. For silicon germanium…

Yes. It did. Thank you very much for the time. And then just for, Oren, can you just talk me through the puts and takes that you're keeping the biggest eye on for gross margin trends through 2020?

BSI? What BSI, what you mean by BSI?

I'm sorry I was just asking about the gross margin trends you're expecting and maybe some of the give and takes for 2020.

Yes. So I believe like I said in the script that I -that we are in - improved our cost structure and revenue mix as could started to be seen this year. And from this baseline of $1.23 billion revenue that resulted in $230 million of gross profit, I think for any additional incremental revenue that you should assume and you should assume because of that we gave a forecast of growth with specific low double-digit organic, so whatever you assume I would think that it's a reasonable to add a 50% to 55% to the gross profit and then if you assume of course it is in a Japan, it lower net profit from that gross profit because of the tax that I explained and minority line and if you believe it's a from a Israel, FF2, Fab 1, so of course it's everything goes directly to the bottom line and 92.5% of that. And if you believe it in the States over 80% from that extra gross profit.

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

Yes. Thank you for taking my questions. Just to follow up on the organic growth rate of low double digits. So just to clarify so on the Panasonic business now that the agreement has been renegotiated last year, we should kind of be looking into $70 million to $80 million range this year per quarter. And in terms of the maximum revenue are there any factors that would have that revenue be down this year say versus last year based on the number you gave us. I'm just trying to get a sense of when you're talking about double-digit organic growth if the non org-inorganic business is pretty much going to be flat. Is there - are there going to be other kind of risk there.

Okay. So on Panasonic, you are correct, it’s between $70 million to $85 million but bear in mind that Q1, 2019 was still on the previous contract. So, obviously, if you are talking about 2020 you have on the baseline a $24 million, $22 million whatever you assume $20 million, we said between $20 million to $24 million reduction only in Q1 from Panasonic and the Maxim, we said like Russell said, it's a 15-year contract gradually decreasing. You can assume a few, very few million dollars of reduction, but all that is just emphasizing the very good year that we see because we said that even with those you can call it $25 million to $35 million total reduction we expect the goal, so of course we expect to overcome it and if we follow up on Mark's previous question and reduce from 1.23 the Panasonic and Maxim revenue that I indicated approximately, you see that low double-digit is a significant amount of growth.

And then in the press release, Russell, and also in the prepared remarks you had mention capacity expansion and you broke it out into kind of near term and medium term to long term. You talked about M&A even on the medium to long term. Wondering at a high level you could maybe discuss what you're thinking about in terms of expanding capacity over the long-term acquisitions?

Our big focus there is300 millimeter capacity growth. We have stated that I believe several times, we've talked in the past about the importance of increasing presence and capabilities in China that has never change and other activities that one would have to move forward with 300 millimeters. I think we're making good progress across several fronts there, not to a point right now of needing to release and but certainly it remains in a strong direction of the company, a strong direction of our Board of Directors and with very substantial progress is being made.

And last question for me in terms of -it was hard to assess but the growth in RF SOI mobile last year was pretty strong. We also have 5G smartphone kind of ramp going on. Any kind of impact that you're seeing over the last few weeks from your customers related to the Coronavirus. The indirect impact that they're seeing or just kind of what you might see in the next quarter, so maybe perhaps at curtailing the 5G smartphone ramp, any thoughts there will be helpful. Thank you.

As I stated we stay very close with our customers and we have not yet seen any substantial reduction forecasts or push out of orders. We did within Q1 as stated have $3 million to $5 million impact. It was Coronavirus related and that instance had really dealt with very specific back-end processing and packaging that was impacted because of the reduction -all that reduction due to the requirements that people would not come back to, in certain regions to work and stay at home for longer than the Chinese New Year. And so that did have an impact. I don't know that that would continue. It doesn't appear that it is, but that was the $3 million to $5 million impact and it was from specific directions of people staying home to make sure that they stay safe and that's a spread of the virus remains contained. That is no longer the case to my understanding for that specific area. But no, we have really not seen it. I mean it's obvious that things can happen and things that we are not yet aware of, but we have not yet seen any reduction. And that's just the case.

The next question is from Achal Sultania of Credit Suisse. Please go ahead.

Hi. Good afternoon. Just two questions. First one on the RF mobile side. Obviously, my understanding is that you've got a strong relationship with Skyworks and Qorvo on the RF side. Obviously, with all the US-China trade tensions, it seems like the Chinese companies are looking for alternative suppliers outside of the US in the RF space specifically. So can you help us understand your exposure in that RF mobile space beyond some of the dominant US players? And then secondly on the silicon germanium side, can you give us some color around -my understanding is that your revenues in silk germanium are trending around $30 million to $40 million a quarter. Is that the right number and when you talk about growth in 2020, is it fair to assume that first half run rate is similar to what we are seeing currently? And then we see 20% growth from that base as we go into second half of this year. Thank you.

Okay. I'm sorry could you tell me the number, what was a number that you said.

Around $30 million to $35 million per quarter in silicon germanium right now during 2019.

Okay.

And that going to like do we expect similar numbers in H1 of this year and then we expect a 20% growth half over half as we go into H2 from that base.

So in that range for the first half, correct. And yes breaking that range in the second half exactly correct.

Yes. And by the way, Russell said the $136 million in his script that it was at 2019, yes.

Okay. $136 million, okay. So that would imply that a lot of that silicon germanium growth is going to be seen not in 2020 but rather in 2021?

Right. The second half of 2020 will have a lot of more revenue in SiGe and this is why we said that from now we already see high run rate of stocks and orders.

Right. Okay.

But you are correct if -as the ramp continues in the second half you see; the ramp is pushed out on the revenue side on the order of one and a half to two quarters depending on what the start Q is. So you're correct there, we expect that we will continue to see silicon germanium revenue increases in 2021. I did state that in the script as well. But, yes, the second half versus the first half by forecast now we see a 20% increase and you know what the revenue rate had been. So I think that's somewhat realistic.

And end applications for silicon germanium is it automotive radars and mobile RF or is it something else as well beyond those two?

It is all about as radar; it is mobile RF as we stated but the bigger portions of it are into optical connections for data center and for base station devices. So your - that's what we talked about with the 5G deployment. The 5G deployment for the SiGe comes in to both SiGe, LNAs, but it's -the bigger portion of it right now the ramp that we're seeing is for 5G infrastructure and the data center has been and remains a very big portion of that business.

Okay. Thank you. And then coming back on that RF question like the U.S. exposure versus non-US exposure.

I think we're very well diversified in the customers that we serve. I mean certainly in the history there are press releases between us and Qorvo and us and Skyworks also between us and Broadcom. We work hard to maintain strong customer relationships with all of our customers, but we also have multiple new friends that have come up and a good portion of our big RF mobile growth, the RF SOI specifically in 2019 was outside of the US as well as activities for customers inside of the US. So I think we're pretty well diversified. It's not that if any given end-user in China wanted to move away from for whatever reason from a big US supplier, it's not that we would necessarily lose that business as being the foundry supplier.

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

Hi, Russell. Hi, Oren. How are you doing? Let me just follow up on a couple of silicon germanium questions. There's just kind of big picture you've talked in the past about having a strong market share with that technology particularly in optical. I think you've even mentioned number of 60% or so. How do you view your competitive position as you get into the higher speeds above 100 gig? You talked about 200 and 400 today and even above. Where do you think your competitive position will be going forward?

Well, we think very strong especially as couple it into very interesting activities with silicon photonics. But, yes, the rise SiGe capability is extremely good. We've talked about the H5 platform and of lead customers having taped out into that technology. So at a 200 gigabit per second, 400 gigabit per second capability and to be able to as well to be supporting with photonics chips that have all the benefits of the speed and power reduction, cost reduction by putting everything onto one platform. There's a variety of discrete. So I think our competitive position remains very strong.

Okay. Good to hear. My follow up quickly on your comment on silicon photonics. You mentioned, I don't know if you intended to make a direct high in there but maybe you can give us a sense of where your competitive position looks there as well. I know there have been a couple of larger foundries or kind of hybrid companies who have historically maybe had more focus there. You announced a very nice customer in Inphi back in December. Where do you think you're positioned there as well? And actually I'll just leave it there.

I honestly think that we're at the top. I really do. I think programs we have going on there are amazing. So, yes, I think we're in extremely good position. Candidly, I don't want to say things that are out of place because there are activities that are not press released and customers that are not yet press released, but I stated that we have 30 active engagements with 20 customers that have tapped out. I think that's in a pretty good spot to have 20 tape outs at this point or 20 customers that have tapped out on SiPho. That's - I think we have a very good platform and I think we're acknowledged very strongly in industry for having -from the foundry perspective I think the best platform.

Okay. Excellent. Great to hear. We look forward to hearing more about the rest of the year. My last question is probably more for Oren. Maybe if you can just give us a sense of your CapEx outlook this year. In the past you've talked about it being kind of $40 million to $45 million per quarter with some adder from 200 -millimeter and I think it was still within that range in the fourth quarter. So wondering if you can give us a sense of what you're looking for this year?

Yes. I think it's a consistent to previous, but so until this quarter I mean Q4, 2019 we were very stable and always in line with the $170 million per year. So $42 million to $44 million a quarter. And what we set for 2020, in July, we published a press release that we will invest additional $100 million for Uozu to satisfy existing customer demand we have there increasing utilization. And so that's additional $100 million for 2020 that will be paid during the year, you may assume a little bit front and like Q1, Q2, Q3 aside of that every quarter. And in addition Russell updated on its script on $20 million for QT9, which also will be paid gradually I assume Q3, Q4 until the payments will happen, so $10 million each. So overall for the year, we will have the regular $42 million to $44 million a quarter plus they took $200 million Russell spoke about today plus the $100 million that we announced in July.

We have a follow-up question from Mark Lipacis of Jefferies. Please go ahead.

Hi. Thanks for taking the follow up. I don't believe you've mentioned this in the call, if you did, my apology, but could you give us an update on your joint venture in China?

The joint venture in China. You're referring to the activities in Nanjing from a few years ago?

Yes.

I see. No, so on that we went ahead. We did our parts. We -technologies project, the building was completed we were never an investor in the project. And you talked about a joint venture, I don't know that it was a joint venture but it was certainly an activity that we were involved in that we were going to get capacity out of, as well as net cash. We get involved; we did certain of our milestones. We were paid for our milestones. I believe that we had released that and the ultimately -the group that was -the going to be the owner of the factory, they did not provide their funding. The Nanjing government came through on its side. So at this point, there's a building that exists. It hasn't been - a government that wishes to move forward. There's a still discussion going on with various investor groups. And we're involved as a technology provider for that that could go forward. But at this point, there's been no progress as far as a replacement of the previous company that was the owner company for the project.

Okay. Got you. So there's no for the foreseeable future, we shouldn't expect any capacity you guys have, any excess capacity or extra capacity from that facility.

No. But it's also at this point not a capacity that we needed. That deal was for us a very, very different type of a deal. We weren't involved in it necessarily for capacity. We were involved in it for capacity to enable a specific deal with a very, very good customer that we have that would have allowed an ability to transfer a technology that we wouldn't have put in others of our factories that could have gone in there under with wind circumstance for Tacoma for ourselves for the customer. And as well we were involved in it from technology licensing and advisory rollers. But it wasn't because we needed raw 200 -millimeter capacity out of that factory. It's a very different activity than something we would be going after in China in the 300 -millimeter node to where in a 300 -millimeter its capacity that we'd be very interested in. And we would not be getting involved as a technology provider. We'd be getting involved were we to be moving forward in that type of an activity.We'd be getting involved as the company that would ultimately be the majority owner.

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

Hi. I just have one big picture question. So with the continuing like battle with Huawei and up it to the point of actually trying to get Taiwan Semiconductor to stop selling them chips. Is that changing anything in your planet or possibly affecting just the overall deployment of 5G?

I don't -well, we do not ship anything directly to Huawei. They're not a direct customer of ours. There are probably no restrictions for manufacturing certain parts outside of the US from customers of ours that are not US companies for them to ship to Huawei. And I think that that's perfectly fine. We do not have any adverse implications from anything happening with Huawei. But again we are -we have manufacturing facilities throughout the world.

Okay. So you don't really think it's going to disrupt the entire deployment in the whole industry?

No.

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

Yes. So again I thank everybody for their interest, I know that in light of some recent announcements that there's maybe a darkening looking at the industry at the moment. But we really are very optimistic going into the year. We see very good activities having occurred in 2019 against multiple headwinds that now seem to be dissipating themselves. And those activities are driving very good revenue projections for this year. We see it as a year we will have overall revenue growth and as stated double-digit organic revenue growth and a recovery in several of the high margin areas where Oren is very optimistic about, not just utilization numbers going up and what that means on margins. But as far as the richness of the mix going up.So the year looks very, very positive for us. We look forward to meeting with investors and analysts face-to-face. We are scheduling an Investor and Analyst Day at the NASDAQ Building in New York on March 31st a.m. Signup will shortly be available on our website. But we do wish to note one thing this event although scheduled and although it will be signed up for, it may be postponed according to updated travel and/or health advisories. But par that, we really look forward to seeing everyone on the call. And people that weren't able to make the call at the NASDAQ event on March 31st. And look forward to the interactions. So thank you very, very much.

Thank you. This concludes the TowerJazz's fourth quarter and full year 2019 results conference call. Thank you for your participation. You may go ahead and disconnect.