Tower Semiconductor Ltd.

Thank you, and welcome to Tower Semiconductor Financial Results Conference Call for the third 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 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 third quarter of 2021 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 Elwanger. Russell, please go ahead.

Thank you, Noeid. Welcome, everyone. Thank you for joining our call. Our revenue for the third quarter of the year was $387 million, a sequential revenue record for Tower, which represented 25% quarterly year-over-year total and 40% year-over-year organic growth. In the order of revenue dollars, the technologies that drove the 40% organic growth was firstly RF CMOS at about 75%, predominantly driven by RF SOI. Second was sensors at about 65%, Q3 versus Q3-20, with industrial sensors as the major contributor. The third significant contributor was PowerIC at about 50% year-over-year organic increase. We guide the fourth quarter of the year to continue to grow to a mid-range guidance of $410 million, representing quarterly year-over-year 90% total growth and 26% organic growth, which according to mid-range guidance will yield an annual revenue of $1.506 billion for 2021, which would be a 19% total and 28% organic full-year growth against the $1.266 billion for 2020. Looking into our specific businesses, during the third quarter Our RF mobile business was 26% of our revenues and is expected to continue to grow in the fourth quarter and into 2022. Growth is driven by market share increases accelerated by increased RF content and 5G handsets. As 5G requires a most advanced technology for which we provide a higher value, this change in mix drives increases in margins. Demand is very strong in both 200 millimeter and 300 millimeter, providing returns on capacity investments to date and giving confidence on the return for our present and planned investments. The RF infrastructure business, serving telecom and data common markets with their industry-leading silicon germanium silicon photonics technology, was about 13% of our corporate revenue. During Q3, we witnessed the first significant revenue ramp of our silicon photonics flows. This is the highest margin we serve and is expected to be a meaningful contribution to our bottom line in 2022. This quarter, we announced next generation silicon photonics process flow, which will include lasers and potentially other 3.5 components fully integrated into our high volume silicon process. This can more than double our revenue potential in this market with the laser being the most valuable single component in an optical communication system. Last week we announced a partnership with Anello Photonics to productize a new low loss wave guide technology both through Anello's own products which include precision gyroscopes using silicon photonics to replace optical fiber coils as well as in a new foundry offering for a wide scope of applications in automotive lidar, biosensing, and quantum computing. Our power IC business was 16% of our total revenues with strength in automotive, industrial, and consumer segments. We continue our strong position in automotive battery management area. Additionally, having now signed a long-term capacity agreement with a market leader. Automotive battery management is expected to significantly outpace the overall power IC market due to the worldwide push for electrification of the vehicle. Beyond this market, we are gaining overall market share through technology leadership in what is the largest portion of the overall analog market. Our power discrete was 16% of our revenues. Like power ICs, Growth is broad-based, but led by automotive applications. As discussed last quarter, we anticipate the power discrete business to level off while we focus our CapEx expansion on other higher margin segments. Our imaging business represented more than 15% of our revenues. We continue to see very strong demand in the industrial and machine vision markets, as well as the medical and dental x-ray markets. Our customers in these areas are highly interested in securing capacity for the coming years, seeing long-term market demand. Regarding display, we continue in a substantial partnership for the development of backplane micro OLEDs, mainly for the VR display market, a very fast-growing market. The automotive portion of our business represented 12% of our corporate revenues this past quarter. supported by most all of our technology flows. We have been a dependable supplier to the automotive market for many years, with our industry-leading offerings in imaging and sensing, wireless and wireline communications, mixed signal, and power management. We are not only continuing to invest in new capacity and technology roadmaps, but are also enabling innovative technologies, such as solid-state LIDARs, based on our silicon photonics open platforms. We recently partnered with the University of Southern California to announce a breakthrough development in LiDAR IC technology designed for advanced driver assistance systems and ultimately self-driving cars. And as stated, we recently signed a long-term capacity agreement with a market leader in battery management solutions, ensuring a growing position serving this megatrend of vehicle electrification. Moving to utilization, The following are the third quarter foundry layers, all numbers given in 8-inch equivalents. As well, there is a full table of all numbers in our Q3 financial highlights presentation that will be available on our website at the end of this call. For 150 millimeter, 455,000 layers were processed, up 55% as compared to Q3 2020, and up slightly from the previous quarter. For 200 millimeter, 6,197,000 layers were processed, up 28% as compared to Q3 2020, and up 5% as compared to the previous quarter. For 300 millimeter, 1,539,000 layers were processed, up 57% year over year, and up 10% as compared to the previous quarter. We will now give more color on the revenue and margin impacts of our capacity growth, including the impact of investments in certain capability tools to enable a richer shipment volume mix. As stated, the Q4 2021 mid-range guidance represents a 26% year-over-year organic growth. We've created this growth through three vectors. Firstly, 50% of this is pure capacity increase. Secondly, 25% of the revenue increase is from a richer mix, meaning higher value, higher ASP shipment mix. Thirdly, 25% is by ASP increases of existing products, which customers participated in predominantly to secure a longer-term committed capacity. All the above contributes to strong increases in top-line revenues and margins, targeting to be above 15% net profit margin in 2022. In 2021, our organic growth resulted or will result in a Q4 2021 annualized organic revenue of $1.27 billion, slightly more than the 2020 total revenue. This $1.27 billion of revenue excludes the circa $400 million of Panasonic, now Nuvoton, and San Antonio Maxim long-term contracts that were part of the 2020 revenue. Including those long-term contracts, we end 2021 with mid-range fourth quarter revenue guidance representing a $1.64 billion annualized revenue. Longer term are CapEx Initiatives, which will experience full ramp in 2023 and with the addition of the initial 2023 revenue ramp of the Agrate factory should allow greater than 30% organic growth on top of the present 26% organic growth guided for the fourth quarter of 2021. From that point, revenue and margins should continue to increase as the Agrate fab continues to ramp through to 2026. Such capacity increases are fully spoken for by customers. With that, I'd like to turn the call to our CFO, Mr. Shirazi. Oren, please.

Hi, everyone. We released our quarterly results today presenting an additional record revenue reflecting 25% year-over-year total revenue increase for the third quarter of 2021, or 40% organic increase and resulting in significant increases in our gross operating and net profit margins, as well as in cash flow from operating activities. The revenue and margins increases are driven by the significant customer demands we continue to see in mostly all of our FABs. We are executing the $250 million capacity and capability CapEx expansion plans in our existing FABs, as announced in previous quarters, and the ramp-up of the Agrate 12-inch factory being established in Italy. I will start my review by analyzing the P&L highlights and then discuss our balance sheet and cash flow financial statements. Revenue for the third quarter of 2021 was $387 million, $76 million higher year-over-year, reflecting a 25% total revenue increase and 40% organic increase. Organic revenues are defined as total revenue excluding revenue from Nuboton in our Japan FEBs and revenue from Maxim in our San Antonio FEBs. Gross and operating profits for the third quarter were $85 million and $44 million, respectively. This gross profit is 60% higher year-over-year and 16% higher quarter-over-quarter. And this operating profit is 131% higher year-over-year and 30% higher quarter over quarter. Net profit for this quarter was $39 million, or $0.36 basic and diluted earnings per share. And adjusted net profit was $45 million, resulting in adjusted basic and diluted earnings per share of $0.42 and $0.41, respectively, as reconciled in today's press release tables. This net profit is 157% higher year-over-year and 27% higher quarter-over-quarter. Comparing to the second quarter of 2021, the $25 million higher revenue in the past quarter resulted in $12 million higher gross profit reflecting 47% incremental gross profit margin, $8 million higher net profit reflecting 33% incremental net profit margin, and $14 million higher EBITDA, reflecting 58% incremental EBITDA margin. Moving to our cash flow report and forecast. During this past quarter, we achieved a record cash flow operations at a level of $107 million. We invested $88 million in fixed assets, mainly for manufacturing equipment, and we repaid $29 million of our debt, mainly a principal payment towards Bond Series G, issued in 2016. As we announced in our February 2021 and August 2021 quarterly financial press releases, this year we ordered a significant amount of equipment tools to increase our capacity and capabilities in our existing 12-inch and 8-inch FEBs in order to satisfy our customer demand. These equipment tools were mainly directed to FEB 2 in Israel, FEBs 3 and 9 in the U.S., as well as Feb. 5 and 7 in Japan. The total amount of such approved and issued purchase orders was $250 million as announced, which are payable between mid-2021 and the end of 2022. In addition, we forecast that we will make capex payments for equipment tools for the newly built 12-inch Agrate factory in an amount of $160 million in 2022, and an additional $240 million in 2023. Looking at the balance sheet, we demonstrated again a strong and stable financial position. A few points to note. Shareholders' equity reached a record of $1.56 billion as of the end of the quarter. Current assets ratio, defined as current assets divided by short-term liability, strong at a value of 3.8%. X, deferred revenue and customers' advanced balances under current liabilities and long-term liabilities in the balance sheet have increased by $19 million and $35 million as compared to the end of Q2 2021 and the end of Q4 2020, respectively, and are expected to continue to increase, reflecting enhanced receipts from customers that have asked to secure more capacity and fund manufacturing equipment costs to grow their business potential and address their increasing demand. And now I would like to turn the call back to the operator. Operator?