Tower Semiconductor Ltd.

Thank you, and welcome to Tower Semiconductor Financial Results Conference Call for the second quarter of 2021. 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 20F, F4, F3, and 6K, files with the Securities and Exchange Commission, as well as filings with the Israeli Securities Authorities. They are also available on our website. Tower assumes no obligation to update any such forward-looking statements. Please note that the second quarter of 2021 results have been prepared in accordance with U.S. GAAP. The financial tables and data in today's earnings release and in the 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 Commissions. 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. A pleasure. We're quite excited to share with you our second quarter results and business activities. Our revenue for the second quarter of the year was $362 million, a record for tower, representing 17% year-over-year total and 26% organic growth. In the order of revenue dollars, the year-over-year organic growth was mainly driven by RFSOI at over 40% year-over-year organic increase, PowerIC at 35% year-over-year organic increase, ImageSensors 30% year-over-year organic increase, and power discrete at 23%. To note, all business segments demonstrated growth in the second quarter. We guide the third quarter of the year to increase to a mid-range of $385 million, representing year-over-year 24% total growth and a 38% organic growth, and breaking a $1.5 billion annualized revenue run rate. This should be driven by a further and larger year-over-year increase in RF SOI and image sensors, with all business segments expected to demonstrate growth. Our customer demand and serve markets are strong, hence we expect continued top and bottom line growth in the fourth quarter as tools become qualified for production, enabling further increases in high-value flows. To support continued growth based on our customer demand, we continue to execute the previously announced capacity expansion plans, as well are adding 200 millimeter new capacity, which will be addressed with more details by Oren. Towards specific large 300 millimeter growth, we signed an agreement with ST Microelectronics. In this partnership, we will join forces for an accelerated fab ramp up a key factor to speedily reach a high utilization level and therefore a competitive wafer cost. The Agrate 300 millimeter manufacturing facility, which Tower will refer to as FAB 10, is currently being facilitized. Tower will install its own equipment in one-third of the total space, which should triple our current 300 millimeter foundry capacity. The FAB is expected to be ready for equipment installation later this year and start prototype production in the second half of 2022. Our strong execution in advanced 65 nanometer, 300 millimeter based analog RF power platforms, displays and other technologies will be significantly enhanced by this activity in Agrate. The United States Senate passed the Innovation and Competition Act of 2021 and appropriated $52 billion towards U.S. semiconductor growth. The bill is now before the House of Representatives. Providing its passage, our target is to receive funding towards further growth initiatives in the United States, potentially at our beautiful 130-acre campus, in our San Antonio, Texas facility, or possibly elsewhere. Towards this end, during the past quarter, we've been strongly involved in activities related to this act. I have attended three industry leader panels on subjects of growing and or securing the U.S. microelectronics supply chain, where I have focused as well on the need for advanced analog semiconductor integrated circuit manufacturing. One such panel was a CEO roundtable hosted by Senator Cornyn and Congressman McCaul, both sponsors of the CHIPS Act and their respective legislative bodies, a visionary activity. And I attended a special session at the SelectUSA conference hosted by U.S. Secretary of Commerce Raimondo. I spoke of four imperatives that we believe are essential for foreign entities to qualify to receive incentives from the United States for United States onshore semiconductor manufacturing growth. Firstly, there needs to be US onshore R&D, especially in a foundry model, enabling innovative entrepreneurial ideas to successfully move through concept and feasibility and transition into value-add business. Secondly, all companies need to show a history of strong IP security both external and internal to the company. All recipients should have a strong history of supporting U.S. government initiatives. And lastly, there should be a legislative focus on differentiated analog technology, which addresses 80 to 85% of all system electronics by volume. We continue to work with the Congress of the United States, the Department of Commerce, other U.S. government agencies, as well as other partners. Moving to our specific businesses, During the second quarter, our RF mobile business was 25% of our revenues and is expected to show strong growth throughout the year. Estimates remain that 5G handsets will double year-over-year 2021 over 2020 to about 550 million handsets out of a total of about 1.3 billion. This shift, combined with the high content increase of 5G at our strong position in this market, fuels our continued growth. Importantly, in addition to revenue growth, the shift to more advanced and higher value 5G technology is helping increase the average selling prices in this segment. This trend is expected to continue for at least the next several quarters. Demand is strong in both 200mm and 300mm, and the partnership announced with ST will help meet the requirements of our strong 300mm design wind pipeline. The RF infrastructure business, serving telecom and datacom end markets with their industry-leading silicon germanium technology, maintains a high run rate due to data center strength and was about 12% of our corporate revenues. For datacom, where forecasts remain quite strong, we build both high-speed optical transceivers and high-speed hard disk drive preamps for storage. Our power IC business, was about 15% of our total revenues, with strength in automotive, industrial, and consumer segments. The business is benefiting from a strong market cycle, as well as our significant presence in automotive battery management, which is outgrowing the market and provides for long-term growth with the worldwide trend of vehicle electrification. Our power discrete business has more than recovered, representing about 16% of our revenues. Like power ICs, growth is broad-based, led by automotive applications. We expect this business to level off over the next few quarters, while we focus our capex expansion on other higher margin segments. Our imaging business represented 15% of our revenues, with main growing markets being the medical, dental x-ray, and industrial sensors. In addition, we continue to grow in the cinematography and broadcasting market segment, being among our highest margin imaging applications. For the medical market, we see a recovery of the dental segment to levels that are higher than the pre-COVID-19 levels with a present high growth trajectory. The main long-term growth drivers stem predominantly from the transition from traditional amorphous silicon-based flat panel technology to CMOS. Our customers, who are either x-ray detector suppliers or x-ray equipment suppliers, who design with us their own sensors, are gaining more market share, and we, as sole supplier in most cases, are growing our share accordingly. In the industrial market, we see a steep growth in all of its segments, machine vision for factory automation, for traffic control, as well as automatic data collection. On the display side, we continue substantial partnership developments for backplane silicon for micro OLED, mainly for the VR display, which is a fast-growing market, and on silicon wafer-based micro-LED technology for large displays, TV, laptops, tablets, and smartphones. Referring to utilization, starting this quarter, we will refer to the number of photo layers processed during the quarter per wafer size. Given the fact that we continue to increase the capacity of our manufacturing facilities with Changing mix of flows, pure utilization numbers do not represent the company's operational performance on a time-comparative basis. For the second quarter, foundry layers, all numbers given in 8-inch equivalents, for 150 millimeter, 451,000 layers were processed, as compared to 353,000 in Q2 2020, up 28% year-over-year. 411,000 layers were processed in the previous quarter Q1 2021. For 200 millimeter, 5,921,000 layers were processed as compared to 5,115,000 in Q2 2020, up 16% year over year. 5,772,000 layers were processed in Q1 2021. For 300 millimeter, 1,404,000 layers were processed as compared to 903,000 in Q2 2020, up 55% year over year. 1,375,000 layers were processed in the previous quarter. Excuse me one second. Moving now to corporate sustainability. We are about to issue our first formal environmental, social, governance, or ESG report. However, the core of ESG has long been embedded in the DNA of the company. For Tower, ESG is much more than papers listing activities and targets. It is our focus in being a good, even excellent company for our community and our world. It is how we serve our employees, customers, partners, and stakeholders. Various elements of our corporate responsibility, sustainability and ESG efforts will be described in this report and are well aligned into our value vectors with a mindset of excellence at each of the described areas. We are continuously evaluating our activities in order to improve and ensure that our commitment and actions toward a company that betters society and betters the lives around us are achieved, valued and sustainable. With that, I'd like to turn the call to our CFO, Mr. Oren Shirazi. Oren?

Hi, everyone. We released today our second quarter 2021 results, achieving record revenues of $362 million, reflecting a remarkable 17% year-over-year revenue increase and resulting in significant increases in gross profit, operating profit, and net profit. We are providing a revenue guidance of $385 million for the third quarter of 2021, representing an additional record revenue quarter. As discussed several times over the last few quarters, we continue to see significant customer demand and demand forecasts. Hence, we announced in February 2021 a $150 million capacity expansion plan to increase our capacity in our 8-inch and 12-inch phase. We now announce an additional capacity investment of $100 million, to result in $250 million total capex purchases, which are expected to be paid over the coming five quarters for equipment that begin to provide incremental capacity during the third quarter of 2021 and continuing into 2022. As mentioned by Russell, for enhanced 12-inch capacity on top of our existing WazooFab, STMicroelectronics and us entered into a partnership to accelerate the ramp-up of the Agrate 12-inch factory. We expect minimal capex payments for this project in 2021 and will give details on future schedule and cost during the next quarter. I will now move to our second quarter P&L highlights and then discuss our balance sheet and cash flow financial statements. Revenue for the second quarter of 2021 was $362 million dollars $52 million higher year-over-year, reflecting a 17% year-over-year revenue increase. Looking at our organic revenue, which is defined as total revenue, excluding revenue from Nuvoton Japan, previously Panasonic Semiconductor, and revenue from Maxim in our San Antonio Fed, revenue in the second quarter of 2021 reflects a 26% year-over-year revenue increase. Gross and operating profits for the second quarter of 2021 were $74 million and $34 million, respectively. This gross profit is $16 million higher, or 28% higher, year over year. And this operating profit is $12 million higher, or 54% higher, year over year. Net profit for the second quarter of 2021 was $31 million, or 29 cents basic earnings per share and 28 cents diluted earnings per share. This net profit is $12 million higher or 62% higher year-over-year. Looking at the balance sheet, we demonstrated again a strong and stable financial position. A few points to note. Our shareholders' equity reached a record of $1.52 billion as of June 30, 2021. Deferred revenue and customers' advances balances under current liabilities and long-term liabilities in the balance sheet have increased by $9.6 million and $6.6 million, respectively, as compared to December 31, 2020, reflecting enhanced receipts from customers that asked to gate more capacity reservations to them to address their excess demand, offset by some scheduled repayment. Current assets ratio, defined as current assets divided by short-term liabilities, is strong at a value of 3.7x. In regards to our cash and cash equivalents, in the second quarter of 2021, cash flow generated from operations was $93 million. Investments in fixed assets net mainly for manufacturing equipment were $56 million. We repaid $20 million of our debt during the second quarter of 2021. and invested $17 million in short-term bank deposits and marketable securities. Our cap table consists of 108.2 million outstanding ordinary shares and an additional 2.3 million ESOP-related shares, resulting in a fully diluted share count of 110.5 million. Looking forward to the second half of the year, following the $385 million record revenue guidance for the third quarter of 2021, During this quarter, we expect to see increased margins, a step towards the fourth quarter incremental revenue impact over the margins, which we forecast should exceed the 50% incremental model. And now, I would like to turn the call back to the operator.