Good day, and thank you for standing by. Welcome to the Tower Semiconductor Fourth Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your first speaker Noit Levy, Investor Relations and Corporate Communications. Please go ahead.

Thank you. Good day, and thank you, everyone, for joining us today. Welcome to Tower Semiconductor's Fourth Quarter and Full Year 2025 Financial Results Conference Call. With us today are Mr. Russell Ellwanger, our Chief Executive Officer; and Mr. Oren Shirazi, our Chief Financial Officer. Before we begin, please note that certain statements made during today's call may be forward-looking and subject to risks and uncertainties that could cause actual results to differ materially. These risks are detailed in our SEC filings, Form 20-F and 6-K as well as filings with the Israeli Securities Authority, all available on our website. Tower assumes no obligation to update any such forward-looking statements. Our fourth quarter and full year 2025 results are prepared in accordance with U.S. GAAP. Some that are presented may include non-GAAP financial measures as defined under SEC Regulation G. Reconciliations to GAAP figures and full explanations are provided in today's press release and financial tables. For your reference, a supporting slide deck is available on our website and integrated into this webcast. With that, I'd like to turn the call over to our CEO, Mr. Russell Ellwanger. Russell?

Thank you, Noit. Hello, everybody. Thank you for joining our call today. Very pleased to share our results for the fourth quarter and full year of 2025. Additionally, we are extremely excited to present how these results have redefined our financial milestones and accelerated the time line for achievement of the same. The updated financial model, which we will present is the result of already strong partnerships with our lead customers having grown into deeply trust-rooted supplier customer partnership technical alliances. We ended our fourth quarter of 2025 with a company revenue of $440 million, an 11% quarter-over-quarter growth, 14% year-over-year growth, fulfilling our beginning of the year target of quarterly sequential growth. In addition to the top line, we achieved bottom line growth throughout the year. Fourth quarter net profit was $80 million or 18% net margin, up from 11% in Q1 '25, 13% in Q2 '25, 14% in Q3, indicative of a value-based growth being driven by technology mix enrichment. The revenue growth from Q1 to Q4 of 2025 was $82 million, of which there was a $40 million net profit drop down and almost 50%, to be exact 48.78% and this due to the high value of the incremental Photonics revenue. Revenue for the full year was $1.566 billion, $130 million or 9% increase as compared to 2024 revenue. Now to review our 2025 revenue breakdown and discuss the key trends, please see Slides 5 and 6 as referenced. We achieved year-over-year growth across our key technology platforms, namely power management, image sensors and 300mm RFSOI on top of which record achievements and unprecedented growth of our market-leading optical transceiver offerings, silicon germanium and SiPho advanced platforms has propelled us into a favored and unique position, both driving our growth for 2026 and additionally, giving us the…

Hello, everyone. Earlier today, we released our financial results for the fourth quarter of 2025 and for the full year and also released our balance sheet and cash flow reports. Now I will review the results highlights as well as the highlights of our CapEx investment and afterwards, I will present our updated target financial model, resulting in higher revenue and profit margins than the prior model. Let's first look into the P&L. In 2025, we achieved quarter-over-quarter revenue increase during the year, which has accelerated in the second half of 2025, resulting in record revenue of $440 million in the fourth quarter of 2025, reflecting a year-over-year revenue increase of 14% and a quarter-over-quarter revenue increase of 11%. Gross profit for the fourth quarter of 2025 was $118 million, an increase of $25 million or 26% compared to the prior quarter. And operating profit was $71 million, 40% higher as compared to the prior quarter. Net profit the fourth quarter of 2025 was $80 million, an increase of $26 million or 49% compared to net profit of $54 million in the prior quarter. And earnings per share were $0.71 basic and $0.70 diluted per share compared to $0.48 basic and $0.47 diluted earnings per share reported for the prior quarter. Please note that income tax expenses line in the P&L includes a nonrecurring tax benefit recorded in the fourth quarter of 2025, resulting in an all-in 2% effective tax rate. For 2026 and beyond, as required by Pillar 2 regulation, we estimate all-in tax effective rate to be at least 15% in all our manufacturing sites. For the full year 2025, we reported revenue of $1.57 billion, 9% higher as compared to $144 billion in 2024. Gross profit and operating profit for '25 were $364 million and $194 million,…

[Operator Instructions] We are now going to proceed with our first question. And the questions come from the line of Mehdi Hosseini from Susquehanna Financial Group.

A couple of questions from me. Russell, I want to dive into the announcement that you had last Thursday, increased collaboration with NVIDIA. The press release was making a reference to module. And I want to better understand what that implies. Does this mean that you will be manufacturing a transceiver for NVIDIA or the module is more of a broader -- a reflection of a broader services that you would provide for this customer? And I have a follow-up.

No, the part of our role in the module is the output parameters of our photonics or of the TIA or of the drivers or of the -- for the pluggable or as well for the copper or optical cable. But the partnership is referring to the fact of alignments and needs directly and through our module customers and understandings of supply needs and commitments on supply shipments.

Okay. And your 5x capacity increase for silicon photonics, silicon germanium, is that -- does that include incremental demand from NVIDIA and partners?

Yes, that's referring to total demand. Well, I wouldn't say it's necessarily referring to total demand. It's an answer to demand, but it's the actual capacity that we're building. So if you look at what we had referred to as the $380 million run rate that we had in Q4, take off of that some small amount of NRE, which we don't specify, the silicon wafers that we shipped for the fourth quarter, that exact amount of silicon wafers by capacity, we plan to have 5x more of that in the fourth quarter of 2026.

Got it. Okay. And then on your power business line, does -- would you be able to also help prospective customers on the high voltage, especially as the next generation of AI server rack will require 800-volt DC?

We have a variety of road map activities. We don't, at this moment, have an 800-volt platform on an IC. We do have 800-volt capabilities in Fabs, but not in an IC. But we do have higher voltage IC capabilities with and without SOI.

We are now going to take our next question. And the next questions come from Tavy Rosner from Barclays.

Just following up on the NVIDIA question. So just to clarify, you're not actually shipping directly to NVIDIA, you're shipping through resellers that will just send your technology on to them.

That is correct. We -- as far as the photonics itself, we do not ship that directly to NVIDIA. And as far as specifics of projects or activities that we're doing with NVIDIA, that anything that was not specifically stated in the PR, I would not be at liberty to talk about. But as far as the present photonics -- silicon-based photonics ICs, they are all being designed by and shipped through other module makers or integrators.

Okay. Understood. And then around CPU, I mean, you spoke about the opportunity. I think I recall last quarter, maybe it was a different conversation. You guys spoke about the ability to add value to the ecosystem through lasers, power connectors and you guys also doing any R&D on the actual CPU as well, maybe through like third-party packaging in order to have your kind of own end-to-end offering at some point?

Direct packaging of the CPU, no, we're certainly working on multiple architectures of CPO and certainly, the XPU would be or could be incorporated into the CPO. But the specific activity right now of our engagement, well, that's not even 100% true. Yes. I mean we're certainly working with XPU makers on CPO strategies.

Okay. Understood. And then very last one for me. The rollout of additional CapEx, I think I recall you saying it's going to be all live by end of 2026. Is there any chance that it can come in sooner depending on several factors, maybe some of them beyond your control, but like is there any chance or you have the certainty that that's not going to be online before the end of the year?

The capacity qualification ramp will be happening throughout the year. So it will -- the biggest portion of this $920 million should easily be online, I mean, fully qualified within the third quarter -- on or before the third quarter with growth happening in the first and the second quarter as well. The most recent orders that we've done also have tools that are coming in, in the second quarter. So -- but what we've stated is that what I just stated is that expect and target that by December, everything will be fully qualified in order to be able to do customer starts. In order to have everything fully qualified by December, the tools really have to arrive before the end of the third quarter and nominally by mid-third quarter. So that's where you could be thinking of is that linear or not, there will be a distribution of tools. Some have already arrived and the bulk of this $920 million will be arriving between now and mid-third quarter.

We are now going to proceed with our next question. And the question comes from the line of Cody Acree from Benchmark StoneX.

Congrats on the steady and impressive progress. Russell, maybe could you just give us a little more color on your expectations for your silicon photonics contribution in '26 and '27, specifically with the 70% commitment already talking about prepaid. It looks like your visibility should be pretty solid for the next couple of years.

Yes, definitely. The demand is there. Certainly, we're very aware of the demand. Right now -- if your question is really on the ramp profile, the ramp profile is pure operational execution at this moment. I mean there's some technical execution still. There's some flows that still would need to be qualified, be it San Antonio or be it Migdal Haemek that are not yet qualified that are in the first order -- not the first order, but solely qualified in Newport Beach as that was the fab that most all of this development was done at. So you have some more technical work has to be done, but that's, for the most part, behind us on the technical work. From the time that everything is ready to be qualified, you still have several months for live testing in order to have customers qualify the flow themselves, if you know what I mean. So in some cases, it goes through HTOL and whatever other live tests the customer requires in its own commitments to their end customers, but the bulk of this is just operational execution. I think that's one reason that we're so bullish and confident on where we're at and where we're going on this model that we just gave of the [ 2.8 ] -- what was it [ 2.84 ] and the $750 million net profit. When your target and your plans are to have everything online, for wafer starts in December. Okay, let's say, worst case, you miss it by 1 month, 2 months, 3 months, okay, maybe, but it's there. So if it's -- will you have the full start capability in December, we target to have that, and I believe that we will. Can it push out that 1 or 2 tools isn't…

Maybe can I just continue on with your mobile business. Any concerns about the ongoing memory shortages or the increased prices that have been called out by some of your peers in the industry and the impact to potential unit volumes in the handset market?

Cody, I mean there's always a concern when you have something in the market that you yourself have no say in or control of. So yes, there's definitely a concern there. We work with our customers closely to understand what their inventory levels are. They try to understand what their customer inventory levels are. And to be as convinced as possible that the plan that we have for -- our start plan for the year can be hit. But are we -- I'd love to be able to say that there's no concern we're impervious to it. We're not -- there's -- there are factors in the market that always play that you never want to be a victim, so you try to do as good a planning as you can. And in the best case to have alternatives should a certain capacity not be used in the fab that it can be replaced with something else where we talked about the fact of intentionally working out some lower-margin products to allow room for higher-margin products. The lower-margin products are still in demand and there's always the possibility if there is a gap in the fab because a demand of what you thought would be there is not there, we have the opportunity to backfill it with something else. And that something else is maybe not preferred because it's not the same margin profile, but it can be done. So at least you're absorbing your fixed cost.

We are now going to proceed with our next question. the questions come from the line of Richard Shannon from Craig-Hallum Capital Group.

This is Tyler on for Richard. Sorry to disappoint. I have a question. I had a question on this model that you gave and the 2028 time line. Is this a run rate in 2028? Or is this the full year?

Yes. No, certainly, we will achieve it by run rate and we target to get a full year. But what we stated is that it would be achieved within the year. So we're -- our target and what I've stated is that is our target. One could definitely believe that we will hit it by run rate. And nominally, we'd love to hit it for full year. And it's possible.

Okay. Great. And then the silicon photonics, I know you just mentioned you could backfill other things. But at this point, with all of the CapEx investments that you make is this going to put the fabs at fully utilization for that model?

No. Silicon photonics would not bring any of the factories to the full photo utilization. But it's not the silicon photonics that I was talking about as far as backfilling. That question was the specific question with regard to the RF mobile because of fear of the high-bandwidth memory manufacturers focusing on that for data center rather than supplying it elsewhere. And without the memory that it might not that there could be a decline in the overall mobile integrator by not having the memory they need for their phones. That was what the question was. So I was saying if that was the case, that capacity is fungible.

Got it. But with this, I think what I'm really getting at is with this CapEx spend that you're adding today does that bring us to the 85% utilization?

It does providing that the other flows are used to the prescribed capacity that we allotted to them. So no, it's not -- if it was only silicon photonics, it would not be 85% utilization. But must understand as well, and this is an important point. We're focusing on the silicon photonics, our commitments around the silicon photonics where I say that the RFSOI, if you will, for the most part, that's pretty fungible to power. I mean there are some layers that are different, but relatively fungible for power, relatively fungible for imaging. The silicon photonics is under different ratios, but it's very fungible to silicon germanium.

We are now going to proceed with our next question the questions come from Lisa Thomson from Zacks Investment Research.

I have a few accounting questions for Oren. First off, could you tell us exactly what the dollar amount was for the onetime tax benefit in Q4?

It's approximately the difference between if we had 15% tax or 16% or 17% by the model, which is about from the $81 million pretax income we should have like have a tax expense of about 15% to 17% of that. So about like $12 million, $13 million. Instead of that, we have $1.5 million. So the gap is about $10 million.

Okay. And can you explain exactly what did you get for the $105 million for the lease extension?

We got additional 3.5 years of lease of Newport Beach facility. We announced on 13 November 2025 press release. Instead of that it was supposed to be ending in the beginning of '27, it is now until the end of 2030.

Okay. And you paid the $105 million upfront cash?

Yes, yes. Yes. And it's included in the cash flow operations of Q4, which is the reason why it is a onetime lower by $105 million than any model. But we announced it in November. So it's not new, no.

Right, right, right. And then I'm just curious as the change in the U.S. depreciation rules of what you can write off -- has that changed your model at all or changed your depreciation expectations going forward?

No. No impact on us.

No, not at all. Okay. Great.

This concludes the question-and-answer session. So I will now turn back to Russell for closing remarks. Thank you.

Thank you very much. 2025 marked the completion of my 20th year at Tower. So I thought I would give a little bigger picture view of what Tower is about where we're going, what we're doing. For the year 2025, we had a corporate theme and the theme was bold growth, limitless impact, infinite reach. I love that theme and put a lot of thought into it and truly would be my great honor if my life's journey would be worthy to have those words in my epitaph included, obviously, to loving, honorable, loyal, husband, father, grandfather and friend. But if that was written on my epitaph, wow, what a value-add life I would have led. If you look at bold growth, at least to me, it means being undaunted and creating a legacy much accretive to one's birth situation. In the case directly of corporate leadership, it would mean expanding the enterprise much, much beyond the situation from when one arrived. If you talk about limitless impact, that would mean that the individual or the corporate leader has been successful in importing knowledge and creating opportunities for employees, colleagues, community for one family to have an advancing growth trajectory much beyond what they otherwise would have had, what otherwise would have been. Infinite Reach is a very interesting concept. I first encountered the term in David Deutsche's book, the beginning of infinity and the meeting that he put it forward meant that truth discovered in any severe if indeed a truth holds in all spheres. And it is very interesting. If you look at learning, there are many things which truly cannot be taught, but rather must be learned and where the learning comes only through doing. And I thought about that quite a bit. It really -- many,…

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.