Tower Semiconductor Ltd.

Thank you, and welcome to Tower Semiconductor Financial Results Conference Call for the fourth quarter and full year of 2020. 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 20F, F4, F3, and 6K filed with the Securities and Exchange Commission as well as filings with the Israeli Securities Authority. They are also available on our website. Tower assumes no obligation to update any such forward-looking statements. Please note that the fourth quarter and full year of 2020 financial results have been prepared in accordance with U.S. GAF. The financial tables and data in today's earnings release and in this earnings poll also include certain adjusted financial information that may be considered non-GAF financial measures under Regulation G, and related reporting requirement 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 Elwanger. Russell, please go ahead.

Thank you, Noeid. I welcome everybody to our 2020 fourth quarter and fiscal year business and financial results. Thank you for joining our call. We finished 2020 with revenues of $1,266,000,000 representing year-over-year 3% growth and 5% organic growth. We enter 2021 having completed a very strong fourth quarter with revenues of $345,000,000 having exceeded our mid-range guidance, which represented an 11% fourth quarter year-over-year total growth and 20% organic growth, with resulting EBITDA of $95.8 million and net profit of $31 million. We continue to maintain a healthy balance sheet that fully supports and enables us to add value while capitalizing business opportunities to facilitate future growth. We are guiding the first quarter to a mid-range of $345 million, counter to the typical Q1 seasonality, which will represent a year-to-year 15% total growth with an organic growth of 20%. In addition, from this $345 million revenue base, we expect sequential quarterly revenue growth throughout 2021. Looking at the revenue breakdown, we'll first discuss the end markets and give numbers to the best of our ability and knowledge regarding the end markets RICs are serving. Infrastructure revenue, which predominantly is our RF optical with a certain amount of advanced discrete, was at about $230 million. Wireless was approximately $425 million. Automotive was $180 million. which we serve with power ICs, power discreet, imaging, and RF radar. Consumer, including computing, power management for home appliances and general accessories, and home use security cameras, was approximately $220 million. Industrial was approximately $100 million. Image sensors for high-end photography and medical applications was at about $50 million. Aerospace and defense was also at about $50 million. And there is an additional of about $10 million of devices that we sold that will be divided among the end markets that I've spoken to, but for which we don't have the granularity to break down further. Analyzing the revenue by technology platform for our three corporate focus being seamless connectivity, green everything, and interactive smart system, The breakdown is as follows. Seamless connectivity, which for us is RF infrastructure and RF signal for mobile platforms, totaled to approximately 36% of our corporate revenues, or about $450 million. Mobile was $280 million, a 22% 2020 over 2019 growth. Infrastructure, which is silicon-germanium-based, including the initial silicon photonics ramp, was approximately $170 million, a 15% year-over-year growth. Green Everything, our contribution being energy-efficient power management ICs and power discreets, was approximately $405 million, or 32% of our corporate revenues. Power management ICs were $195 million, flat year over year, however, 25% up organically. Power discreets total to $210 million, a decrease of 12% year over year. Interactive smart systems, which relates to our image sensors and non-imaging sensor offerings, represented about 18% of our corporate revenues at about $230 million, having realized a 7% growth in 2020, despite significant contraction in medical predominantly stitched large dye dental sensors. The rest of our business of about 14% of our corporate revenue served various mixed signal CMOS technologies, mainly computing and specialty memory applications. Looking at our activities in our different business units, Within our analog business unit, our silicon germanium infrastructure business, which provides technology for advanced optical transceivers, where we enjoy greater than 60% market share, experienced double-digit growth in 2020 versus 2019. Customer forecasts continue to show this elevated level of demand to be sustained through the remainder of 2021. In the next several years, there's an expected industry growth of data traffic of about a 15% CAGR. Our opportunity is to mirror this growth and benefit from both a continued rollout of 5G infrastructure, which drives demand for our 25 gigabit per second transceivers and telecom networks, and by data center build-out, which drives demand for our 100 through 800 gigabit per second transceivers. At 400 and 800 gigabit per second, We also anticipate increased adoption of our silicon photonics platform, further increasing our footprint in the optical market and providing new opportunities for growth. As previously mentioned, we are well positioned in this market, having already announced a partnership with Inphi for which we began volume production, and we additionally have over 30 customers engaged with us at various stages of qualification and development. Last month, we announced participation in a DARPA program, developing a SIFO platform with integrated lasers, further differentiating our capabilities in this emerging market. Our mobile business, which provides components for our front ends and handsets, grew as mentioned over 20% year over year due to a combination of increased market share, overall market recovery, and the beginning of a transition to 5G handsets. Growth was broad-based and included ramps of our newest 200-millimeter and 300-millimeter technologies, as well as very strong demand for existing offerings. Forecasts for mobile are strong for 2021, and we expect that 5G handsets, which as previously mentioned require 30% to 50% more RF content, will increasingly replace older models over the next few years, creating a sustained opportunity for growth in this market. Our power IC organic business grew 25% in 2020 over 2019 through gains in market share, both at 200 millimeter and 300 millimeter across a wide range of voltages and applications. We see increasing demand for power management ICs in multiple applications, including hybrid and electric vehicles, as well as consumer e-bikes, computing, and industrial applications. In 2020, we released a breakthrough power IC 200 millimeter technology Gen 6, which is now prototyping with multiple customers. This technology offers over 35% power efficiency improvement and or equivalent amount of die-error reduction at 24 volt operation through an innovative transistor design. This new technology complements our platform leadership positions at lower voltages with our previously announced 65 nanometer BCD 300 millimeter process, and at higher voltages, with our recently announced 140 volt resurf and 200 volt SOI technologies. As validation to the value of these power platforms, customers are approaching us for long-term volume contracts, for which we have already signed one significant one. Looking at power discreet, we see strong recovery for most customers included but not limited to our tier one MOSFET customers. Moving to our sensors and display business unit, first to discuss CMOS image sensors. In the past quarter with OPEX, we introduced a state of the art indirect time of flight ITOF imager with unparalleled performance and accuracy and sensitivity. Based on OPEX measurements, the sensor 17 accuracy are better meaning higher level, higher performance than the two otherwise industry-leading ITOP sensors in the market. This sensor will enter volume production in the second quarter of this year. It is planned to be embedded in smartphones and other devices for face recognition and 3D imaging applications, such as fast autofocus and artistic picture-focused blurring effects. The sensor is based upon our unique pixel-level stacking, state-of-the-art platform, with the best in industry, less than 2 micron, electrical connection pitch. During last year, we engaged in several programs of large X-ray sensors, some already having moved to production. Our differentiation in this market is in pixel performance, especially sensitivity and linearity, and in yields. For 300 millimeter, we are the only foundry to supply such sensors in mass production. 300 millimeter tooling enables very high yields, and very importantly, a design advantage to manufacture a full 21 centimeter by 21 centimeter detector from one wafer and hence eliminating the need for expensive wafer tiling. Our next generation industrial sensors on 300 millimeter using our state of the art global shutter pixels are also ramping into mass production. Our pixel size of 2.5 micron is the smallest in the world. We provide high resolution sensors with current maximum resolutions of 288 megapixel with excellent sensitivity and shutter efficiency for the display screening market. We expect to see many of these new machine vision sensor products based on our 65 nanometer, 300 millimeter platform ramp to production this year. The industrial market continues to grow steadily and we expect to see nice growth of these high resolution sensors, tens of millions of dollars at high margin. The lifetime of such products is long, five to eight years, So we expect high margin, steady business based on these products. If we look at, for example, one such industrial sensor market, manufacturing lines for TV, laptops, smartphone, among others, there is a need for display inspections, which drives a large demand for very high resolution, fast global shutter sensors that meet the tight form factor requirements of the optics, perfectly matched to our high performance, smallest in the industry, 2.5 micron global shutter pixel. Alongside the new 300 millimeter product adaption, we see notable increased 2021 forecast for our existing 200 millimeter advanced platforms. The imaging area that for us was hit the hardest by COVID was dental x-ray. We are encouraged to see an initial increase in purchase orders and customer forecasts now show second half of the year fully recovering, returning to pre-COVID run rates. Moving to non-imaging sensors and displays, there are three end markets that we are focusing on. For each of these, we chose a customer development partner who has a differentiated capability. In the MEMS area, we are entering the MEMS microphone market. This is a fast-growing market with microphones being embedded not only in earbuds and cellular phones, but also in many command-operated devices. Speech recognition AI is being used in such devices. For high fidelity speech recognition, differentiated performance of high dynamic range and low noise microphones are needed. We entered this market with a partnership with GMEMS as press released in Q420. We're in the initial production ramp at a moving forward on developments for the best in industry signal to noise figure of merit. MEMS microphone is a large new serve market for us reported to have been a 1.2 billion market size in 2019 with analyst projections of $1.7 billion in 2024. The display market is undergoing a dramatic change from LCD-based screens with LED backlighting into micro-LED or micro-OLED displays, allowing substantially higher dynamic range with true black and higher brightness. In entering this display area, we announced our partnership with Aladia, This partnership continues well with developments in preparation for mass production of their unique gallium nitride nanotube based micro LEDs, which offer unique figure of merit superiority at substantially lower cost than existing volume manufacturing solutions. In addition, we continue forward with our technology development of CMOS backplane for stitched large die micro OLED array for the virtual reality market. with a significant market leader. Moving to utilization, our customer base continues to grow. The demand of our customers existing in new continues to grow and grow strongly. This is good validation of the value of the previously described technology offerings. To meet this increased demand, we are investing $150 million to increase our capacity as well enable some existing capacity to serve new higher margin offerings. We are investing in Tanami Fab 5 200 mm, Migdal Hemek Fab 2 200 mm, San Antonio Fab 9 200 mm, and an additional investment in Owosu Fab 7 300 mm site. These expansions will have the potential of adding about $150 million of revenue on an annual basis once fully qualified and utilized. we will begin to see some incremental revenue benefit in the second half of 2021, targeting full revenue capacity during the first half of 2022. Fourth quarter utilization levels were as follows. Migdal-Hemek, Israel, Fab 1, our six-inch factory, was at 64% utilization. Fab 2 was at 76%. Newport Beach, Fab 3, was at 75% utilization. Our San Antonio factory, Fab 9, was at 67% utilization. Looking at our TPS GoFabs in Japan, utilization for the 8-inch foundry business was at about 65% rate, and our 12-inch foundry business was at about a 90% rate. With that, I'd like to turn the call to our CFO, Mr. Oren Shirazi. Oren?

Thank you, Russell. Welcome, everyone, to our call, and thank you for joining us today. We released our fourth quarter 2020 results today demonstrating double-digit percentage quarter-over-quarter and year-over-year revenue growth, as well as very strong margins growth and balance sheet financial indicator. We also announced today a new $150 million capacity expansion plan that we initiated in four of our seven publications, focused on our 8-inch and 12-inch facilities, done due to our customers' demand forecasts that are exceeding our current capacity. I will now move to our fourth quarter and full year P&L highlights, and then discuss our balance sheet and cash flow financial statements. Revenue for the fourth quarter of 2020 was $345 million, reflecting 11% revenue growth as compared to $310 million in the prior quarter, and 13% revenue growth when compared to $306 million in the fourth quarter of 2019. Looking at our organic revenues, which are defined as total revenue excluding revenues from Nuvoton Japan, previously Panasonic Semiconductor, and excluding revenue from Maxim in our San Antonio Fed, revenue in the fourth quarter reflects 20% quarter-over-quarter growth and 17% year-over-year growth. Growth and operating profits for the fourth quarter of 2020 were $70 million and $33 million, respectively. $17 million and $14 million higher than in the prior quarter, respectively, and $15 million and $14 million higher than in the fourth quarter of 2019, respectively. Net profit for the fourth quarter of 2020 was $31 million, or 20 cents basic earnings per share, or 28 cents diluted earnings per share, which is $16 million higher as compared to net profit of $15 million in the prior quarter. EBITDA for the fourth quarter of 2020 was $96 million, $17 million higher as compared to $79 million in the prior quarter, and $21 million higher as compared to $75 million in the fourth quarter of 2019. For the full year of 2020, revenue was $1.266 billion, $32 million higher than in 2019, and gross and operating profits for 2020 were $233 million, and $91 million, respectively, as compared to $230 million and $87 million in 2019, respectively. Net profit for 2020 was $82 million, representing $0.70 diluted earnings per share, as compared to $90 million net profit, or $0.84 per share, diluted in 2019. We also announced today a new capacity investment plan of $150 million in the majority of our facilities due to customer demand forecasts that are exceeding our current maximum capacity capabilities. The investment is expected to be made in the coming 12 months in our Feb 2 facility in Israel, Feb 9 in Texas, US, Feb 5 in Toonami, Japan, and Feb 7 in Wazoo, Japan. The equipment will begin to have incremental revenue impact during the second half of 2021, and targeted to be fully qualified during the first quarter of 2022. We believe the CAPEX payments will be mostly made between mid-2021 and the first quarter of 2022. In addition, in relation to the buildings and facilities that are used by us for TPS manufacturing, the lease contract for such building and facility was extended for at least 2032. This lease contract extension resulted in an increase in fixed assets and liabilities of approximately $60 million recorded in our balance sheets under US GAAP ASC 842 named leases. I would like now to describe our currency hedging activities. In relation to the Japanese yen, since the majority portion of TPS cost revenue is dominated in yen and the vast majority of TPS cost are in yen, We have a natural hedge over most of our Japanese business and operations. In order to mitigate part of the remaining yen exposure, we executed zero-code cylinder hedging transactions. These transactions had hedge currency fluctuations to be contained in a narrow range as compared to the spot exchange rate. Hence, while the yen rate against the U.S. dollar may fluctuate, the impact on our margins is limited. In addition, in relation to the Japanese yen impact on the balance sheet, we have a natural hedge on JPY cash and JPY loan balances due to the extent the loan amount does not exceed the cash amount. This helps to partially protect us from potential impact of yen fluctuations. Lastly, in relation to fluctuations in the Israeli shekel currency, we have no revenues in this currency. But since approximately 10% of our costs are denominated in Israeli currency, and we have some liabilities denominated in NIS, we also hedge a large portion of this currency risk by A, engaging zero-cost cylinder transactions to mitigate exposure resulting from our shekel-denominated costs, and B, investing a portion of our cash in Israeli marketable securities denominated in the Israeli currency to mitigate exposure resulting from the shekel-denominated payables, and accruals. Looking at the balance sheet, we present a strong and stable financial position. Property and equipment increased from $682 million as of December 31, 2019, to $839 million as of December 31, 2020. The increase is mainly due to A, the 12-inch FEB capacity expansion program we announced already in July 2019, which equipment mostly arrived during 2020. And B, approximately $60 million recorded following the extension of the lease contract of TPS for the building and facilities in Japan as assets and liabilities under U.S. GAAP ASC 842, as explained beforehand. Short-term and long-term debt balance in the balance sheet increased as well, from $312 million as of December 31, 2019 to $390 million as of December 31, 2020, mostly due to the signing of the extension of the building and facility lease contract in Japan. As described before, this lease is treated as a capital lease, thereby increasing fixed assets and liabilities by approximately $60 million net. Our shareholders' equity reached a record of $1.45 billion, Our cap table consists of 108 million outstanding ordinary shares and an additional 2 million ESOP-related shares, resulting in a fully diluted share count of 110 million. Current assets ratio, defined as current assets divided by short-term liabilities, was 4x. And a last note on our cash flow report. In the fourth quarter of 2020, cash flow generated from operations was $73 million, and Investments in fixed assets mainly for manufacturing equipment were $64 million, which included investments to increase our 12-inch FEB capacity in Japan. In addition, we repaid $8 million of our debt during the fourth quarter of 2020. For the year 2020, we generated $277 million cash for operations. We paid $64 million of debt. And we invested $257 million in fixed assets, mainly for the purchase of manufacturing equipment, including investments to increase our 12-inch FEB capacity in Japan under our release from July 2019. And now I wish to turn the call back to the operator. Operator?