Tower Semiconductor Ltd.

Thank you, and welcome to Tower Semiconductor Financial Results Conference Call for the third quarter of 2023. 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 statement. Please note that the third quarter of 2023 financial results have been prepared in accordance with the 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 within the Securities and Exchange Commission. The financial tables include full explanation of these measures and the reconciliation of these non-GAAP measures to the GAAP financial measures. In today's call, we have supporting slide deck that complements our conference call. This presentation is accessible on our company's website and is also integrated into the webcast for your convenience. Now I'd like to turn the call to our CEO, Mr. Russell Ehlinger. Russell, please go ahead.

Welcome, everyone, and thank you for joining our call today. Being the first financial release call we are holding since November 2021, we will include in today's call a longer-term financial model stating the reasons for and the margins resulting from the new capacity agreements that we have announced in the past years. An important aspect of our growth strategy is manufacturing efficiency and scale. Increasing capacity in an accretive cost-efficient manner is a competitive edge. First, looking at this past quarter, our revenue for the third quarter was $358 million, down year-over-year, reflective of challenging market conditions. At this revenue level, FAB utilizations were FAB 1 6-inch, about 55%, FAB 2, 8-inch, about 75%. FAB 3, 8-inch, about 40%, due primarily to the weakness in data centers. FAB 5, 8-inch, at about 60%. FAB 7, 12-inch, about 60%. And FAB 9, 8-inch, about 65%. As you can see, with the present utilization levels, we have the ability to quickly ramp up manufacturing to capitalize on a market rebound. A positive point demonstrating our operational efficiency, at these lower utilization levels, excluding the accretive impact of one-time items, we had substantial operating profit. Currently, we are seeing a return in several areas to rational customer inventory levels and are beginning to experience some upsides relative to customer forecasts as end market opportunities present themselves. We have yet to see customers increase their forecasts, although certainly in the RF segment, inventory levels have reached or fallen below the previous steady state. We remain proactive with our customers, providing operational flexibility as even small changes to end markets, if one has the ability to act quickly, could have a disproportionately positive impact on near-term results. For the fourth quarter of 2023, we expect revenue of $350 million, plus or minus 5%. We are active and committed to creating sustainable value for all of our stakeholders. As we stated at our last investor call on September 5th, Tower is actively embedding excellence in everything we do, which we define as effective, efficient, and at the highest quality. Tower is extremely efficient, as measured by the 10-point drop from gross margins to operating margins, reflecting total OPEX of about 10% of revenue. Effective can be measured by gross margins, which means value-added offerings at manufacturing scale. Our offerings are value-add. A bit later, our CFO, Mr. Arun Shirazi, will discuss the long-term financial model showing the result of increasing our manufacturing scale, reflecting Tower's present capacity footprint and the additional capacity capabilities resulting from our investments in the Egrate facility and in the New Mexico facility with ST and with Intel, respectively. These technologies that create value, almost by definition, are those which serve exciting high-growth markets. Within the analog world that we serve, we are focused on three megatrends. seamless connectivity served by our RF roadmaps, green everything served by our power platform, and smart systems served by our sensors and display offerings. We are committed to continue to advance the platform serving these trends, which in turn empowers us to meet the demands of our customers and remain at the forefront of industry trends. Our RF mobile business is primarily composed of handset RF components, such as switches, antenna tuners, and low-noise amplifiers, built on our RFSOI technology. As you know, the handset market has been weak in 2023, although there are signs of potential recovery, as evidenced by sequential quarterly revenue gains through all of 2023, from a bottom in Q123. Longer term, we anticipate a market recovery, along with increased adoption of 5G in developing nations, to contribute to further growth. To accelerate internal growth that outpaces the market, we have invested in advanced RF-SOI technology with the recent release of design kits for QT10, our 10th generation process, offering the industry's best R-on-C-off figure of merit, striving improved reception and battery life enhancements. This technology is prototyping today in 200 millimeter and we are releasing design kits in a 300-millimeter version this quarter. We have significant prototyping and design activity and anticipate this new technology to contribute meaningfully to revenue, with design ones already with two of the top five front-end module providers and active engagements with multiple others. Our RF infrastructure business is primarily composed of silicon germanium and silicon photonics for optical transceivers and data centers, artificial intelligence clusters, and telecom networks. Over the past three months, we have met with most all of our major customers throughout the world. One thing that was striking is that the near-term moved 800G data center appeared to be much more aggressive than is depicted in analyst reports, resulting in a stronger cycle ramp for the industry as silicon photonics plays an increased role at 800G and beyond. For your reference, please see slide six. Tied to this We are seeing increased orders for silicon photonics, with customers forecasting a substantial ramp continuing through 2024 and beyond. Currently, we have over 50 active SIFO customers serving data center telecom, automotive LIDAR, and optical computing. In the third quarter, we announced a multi-generation partnership with InnoLight, the worldwide leader in data center optical solutions. This partnership highlights the strength of our offerings with the end customers representing the core of all hyperscalers, enabling cutting-edge technology to support the growing demands of data centers, including AI, and next-generation telecom networks. For our silicon germanium business, we are seeing significant first-year design wins for linear pluggable optics, LPO components, which promise to replace costly DSPs in advanced optical modules. For your reference, please see slide 7. LPOs integrate some additional functionality into traditional silicon-germanium drivers and transimpeded amplifiers to eliminate the need for costly and power-hungry deep digital signal processors in many 400G and 800G applications. This new innovative technology offers improved cost, reduced power consumption, and reduced latency for data center, including for AI applications. We have also seen design wins in first orders for retimers using active copper cables built with our silicon-germanium technology, serving top data center hyperscalers and hyperscaler providers. It is an alternative to more costly pluggable optics, particularly for short-reach applications, further expanding our silicon-germanium total available market. Finally, and also of significant importance, we see increased activity towards the newer market of satellite internet service using silicon germanium phased array, offering the best performance and cost trade-off in terrestrial receivers employed by these systems. For your reference, please see slide 8. This application space promises to meaningfully increase the silicon germanium total available market over the next several years, as each receiver requires, on average, 250 silicon germanium phased array ICs, with a major win having been awarded to us this past quarter. Turning to our power IC business, in the past few months, we had two very major wins. Firstly, from a premier power management integrated device maker for the next generation 65 nanometer BCD. And secondly, from the leading analog phablet company with a design win with their first year end customer. These activities are forecast and aligned with at least one end customer to grow to several tens of thousands of wafers per month, and is the major catalyst for entering the New Mexico Fab Manufacturing Agreement. In the imaging market, we continue our focus on creating highly differentiated technologies for industrial, medical, and automotive use. Scoring a major win in Q3, where we partnered to provide sensor technology to an iconic mirrorless camera company. For your reference, please see slides 10 and 11, which define this market. In the industrial segment, we gained an entire next-generation line with a leading imaging provider. The display market is undergoing a revolution with the rapid growth of the VR and AR markets. Technology-wise, in order to meet these markets' resolution and brightness requirements, a shift from the traditional LCD-based displays to organic LED on silicon is required. For your reference, please see slide 12. We have developed a 5-volt platform and are currently at advanced stages of creating a 10-volt platform for even higher brightness and are engaged with leading display suppliers in Korea and China. This is the next big thing in the display area, and we are technologically well-positioned to take a substantial market share at this exciting new market. Providing our revenue breakdown for the third quarter of 2023, sensors and displays represented 18%. RF mobile business represented 26%. RF infrastructure represented 10%. Power IC business, 21%. Discrete business, 17%. Mixed signal CMOS, about 6%, with about 2% miscellaneous for this period. Automotive, which had served through several of the above-mentioned technologies, was at about 17%. I'm pleased to announce two strategic organizational changes we just implemented. These changes have been carefully designed to enable our next series of steps to achieve the next peak in our progress. Dr. Marco Roccanelli was promoted to serve as Towers President. As such, he is responsible for all business unit and sales activities and organizations. Dr. Avi Strum was promoted to be Towers Chief Technology Officer, responsible among others for a four to six year accretive technology roadmap with associated activities, and all M&A activities. I believe that these organizational changes will enhance TOWER's value proposition and continuous profitable growth. Please join me in wishing Marco and Avi much success. Godspeed. Oren, please.

Thank you, Russell. We released today our quarterly results reporting revenues of $358 million, gross profit of $87 million, and net profit of $342 million, which net profit included $290 million of net profit impact associated with the merger contract termination fee received from Intel. I will start my review by analyzing the P&L highlights, followed by our balance sheets and a presentation of our long-term financial model. Revenue for the quarter ended in September 2023 was $358 million compared to $357 million in the prior quarter, and gross profit for the quarter ended in September 2023 was $87 million, similar to the gross profit in the prior quarter. Operating profit and net profit for the quarter included the net impact of merger contract termination fees we received from Intel in the amount of $314 million net of associated costs. This amount is included in operating profit. The net profit impact after tax is $290 million based on a 7.5% preferred income tax rate that applies to us in Israel. Including determination fees, operating profit for the quarter was $362 million as compared to $51 million in the prior quarter. and net profit was $342 million, or $3.10 basic earnings per share, compared to net profit of $51 million, or $0.46 per share of basic earnings in the prior quarter. Our balance sheet, as of the end of September, totaled $2.8 billion, primarily comprised of $1.1 billion of fixed assets, mostly machinery and equipment, and $1.7 billion of current assets, 72% of which were cash deposits and marketable securities. Current assets ratio, reflecting the multiple by which current assets are larger than short-term liabilities, is very strong, by a multiple of 6.7x as compared to 4.8x in the prior quarter. Shareholders' equity increased by 17% quarter-over-quarter and by 24%, as compared to its amount in the end of FY22, and reached a total of almost $2.4 billion. Our strong financial position enables us to plan the following investments in growth opportunities that are aligned with our vision. One, approximately $500 million of total aggregate cash was allocated to make investments in equipment and other CapEx items required for the 12-inch factory in Agrate, Italy. required for a portion of the ST-Minefront partnership, of which $100 million were already invested in FY22, and an additional $150 million were invested to date. Two, as announced two months ago, we will invest $300 million to buy equipment and other CapEx items that we will own in Intel's FAB in New Mexico, enabling Tower to ramp up production and manufacturing for its customers. Three, we expect our maintenance capex baseline level to remain, as previously announced, between $180 and $200 million per annum. And four, we will continue to invest to refine our product mix in the technologies and markets Russell previously described to enhance our flexibility to cross-manufacture at our multiple factories. All should result in a richer mix from a margins point of view and all in accordance with our growth strategy. Russell described previously the market, technologies, and customer demand, which drives our need to increase our capacity. I will now outline our target financial model, which is based on the assumption that the presently expressed and forecasted customer demand for the products, technologies, and markets Russell described will result in 85% utilization of our capacity, including the ramp-up of Agrate and New Mexico. I refer to the target financial model, a summary of which is presented in slide 14 in this called slide deck. Based on this assumption, we believe we will have the opportunity to achieve annual revenue of about $2.65 billion. Achieving this level of revenue should, according to this model, result in an annual gross profit of $740 million, an annual operating profit of $560 million, and an annual net profit of $500 million. To provide context, reaching revenue growth at a level of 1.9 times of our last published quarter annualized revenue run rate would result in gross profit, operating profit, and net profit to be 2.1x, 2.9x, and 2.4x, respectively, as compared to the last published quarter annualized run rate, excluding the accretive one-time impacts as outlined in the model. Our model demonstrates several key indicators of our efficiency and effectiveness as follows. One, we are showing an increase of 86% in revenue while keeping OPEX costs below 10% of revenue. Our incremental growth operating net margins as a percentage of the added revenue of $1.2 billion stated in the model should be 32%. 30% and 24% respectively, which are higher than our current baseline margins. Three, by increasing our revenue by 86% from the last reported quarter run rate, we should increase our operating profit by 187% and our net profit by 140%. In summary, achieving this plan target, achieving this plan target, would result in annual revenue of about $2.65 billion, annual gross profit of $740 million, $560 million in operating profit per annum, and $500 million in net profit per annum. And now I'd like to turn the call back to our CEO, Mr. Russell Elwanger.