Tower Semiconductor Ltd.

Thank you and welcome to Tower Financial Results Conference Call for the fourth quarter and full year 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 20-F and 6-K, 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 such forward-looking statements. Please note that the fourth quarter and full year of 2023 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. Please note, we have a supporting slide deck that complements today's conference call. This presentation is accessible on our company's website and is also integrated into today's webcast for your convenience. Now, I'd like to turn the call to our CEO, Mr. Russell Elwes. Russell, please go ahead.

Thank you, Nuit. Welcome, everybody. Thank you for joining our call today. During today's call, we will discuss our financial results for the fourth quarter and the full year of 2023 and share our strategic direction and expected growth outlook for 2024. To begin, as is known, on January 1st of this year, there was an earthquake in Japan and a surrounding area to our facilities at Hokuriku. We are grateful that no employee suffered any physical harm through this event. Due to state-of-the-art building practices, we did not suffer facility structural damage. We did suffer tools damage and scrap of some percentage of work in progress at both factories, as well as secession of operations. Our dedicated and most capable employees have recovered both factories to full operation with start levels currently to the level set in the annual plan. 2023 was marked by an industry-wide slowdown, resulting in an annual revenue of $1.42 billion. As we transition into 2024, there are clear indicators of market recovery. We are realizing renewed demand across several of our key market segments. We will give more color on this as we continue the call. Revenue for the fourth quarter was $352 million. At this revenue level, FAB utilizations were FAB 1, 6-inch, was about 60%. FAB 2, 8-inch, was about 75%. FAB 3 remained at about 40%. FAB 5, 8-inch, was about 40%. FAB 7, 12-inch, was about 70%. FAB 9, 8-inch, was also about 70%. As a validation of our value-add products and next-generation customer-aligned roadmaps, we not only maintained our blended average selling price per layer, but saw an increase of about 4% in 2023 over 2022. This was not due to price increases, but rather due to value-add products resulting in a richer mix and as a reason for maintaining good margins in a period of industry pullback. Anticipating shifting market dynamics and customer demand, we are actively optimizing our operations through a consolidation of our 6-inch activities into our 8-inch operations in Migdal-Hemek, Israel. As part of this optimization process, we will phase out certain lower-margin products in our 6-inch offerings, aligning to our long-term strategic goals and financial model, while porting certain activities to the FAB2 8-inch, For example, a high value technology serving a next generation advanced computer tomography CT scan machine into our 200 millimeter factory, ensuring continuity and even greater efficiency for this technology, which will require several hundreds of 200 millimeter wafers per CT machine. A breakdown of our 2023 revenue per end market is as follows, shown in slide three in the supporting slide deck. Census and displays represented 20%. RF mobile business, 22%. RF infrastructure business, 10%. Power IC business, 24%. Discrete, 15%. Mixed signal CMOS, 7%. And there's about 2% of miscellaneous for this period. Revenue breakdown by end market as follows. Please reference slide four. Infrastructure revenue, which is predominantly RF optical with a certain amount of advanced discrete, was 11%. Wireless was approximately 22%. Automotive, 17%, which we serve with power ICs, with discrete, with imagers, and with RF radar. Consumer, in which we consider compute power management for general accessories and home appliances and home use security cameras, was approximately 13%. Industrial, about 7%. Image sensors for high-end photography and medical applications, about 7%. Aerospace and defense, about 4%. And there was about 2% of mixed signal CMOS where we do not have exact end market knowledge. Additionally, about 14% of power device revenue for which we do not have granularity on the exact end market application, which served multiple of the above mentioned segments, such as automotive, industrial, wireless, and consumer. And lastly, an additional 3% divided among the end markets that we've spoken, but of which we cannot granularize. Specific on RF mobile, we are experiencing a rebound in the mobile market, running presently at high utilization for both 200 millimeter and 300 millimeter RF SOI capacity, with additional capacity coming online throughout 2024 and 2025. Our capacity planning is and will continue to pay off, having met our initial targets at the Agrate Italy facility, having qualified and shipped our first products with a planned ramp throughout this year, supported by an already executed double-digit number of production tape-outs to meet the increasing demands shown in our customers' forecasts. partnering with ST, and hence leveraging the ST build-out, we reduce the impact on margins of the new manufacturing activity. But as is in any new capacity ramp from scratch, there is an initial headwind on margins. This should be fully absorbed and become accretive margins within the first half of 2025, the planned completion of the present phase capacity ramp in the Agrate facility. Looking forward, we are prototyping new 200 millimeter and 300 millimeter technologies, please see slide five, with best in industry efficiency as measured by R on C off and output power as measured by breakdown voltage, winning new customers and design slots whilst beginning conversations with customers about 6G requirements. Prior to the adoption of new wireless standards such as 6G, We see additional AI and mobile AR VR applications having the potential to drive a stronger handset refresh market over the next several years to further benefit our RF business. RF infrastructure. We are strongly positioned supplying AI infrastructure growth in part by our previously announced silicon photonics partnership with Inolite, the global number one optical module provider, and Marvell, a Tier 1 optical connectivity provider, as well as with a total of over 50 additional customers currently using our silicon photonics foundry platform. In addition to our current silicon photonics production supplying 400G and 800G AI data center and datacom infrastructure, we are investing with our lead customers in new technologies, enabling more efficient 1.6T systems through innovation in both materials and architectures, including options for co-package optics. We continue to expand the silicon photonics application space by working with leaders in automotive and commercial LIDAR to enable silicon photonics-based future frequency-modulated continuous wave that can create solid-state, cost-effective LIDAR solutions with better resolution and capability than possible with other technologies. Please see slide six. Leveraging our incumbent position, we continue to work with our previously announced silicon germanium customers, including Macom, Broadcom, and Semtech, and many others, to develop next-generation optical components for pluggable transceivers, active cables, and for LPOs, linear programmable optics, to not only support faster data transmission rates per single wavelength, but also to reduce latency and power consumption for data centers supporting generative AI and machine learning applications. Finally, we just recently announced our partnership with Renesas, a global conglomerate and market leader, in supporting the rapidly growing satellite broadband market. Today, our silicon germanium products can go into beamformer terrestrial antenna terminals, where each user terminal requires more than 250 silicon germanium transceivers. For reference, please see slides seven and eight. Longer term, the industry is exploring ways to incorporate satellite reception into handsets, which could create an even larger market opportunity, including a change of cadence and next generation mobile platform refresh adoption. With multiple FAB qualifications for silicon germanium, we are well positioned to support the capacity needed for these expanding markets. Looking at our power business, While 200 millimeter power is undergoing some level of inventory correction, driven in part by automotive, we continue to see very strong demand for a 300 millimeter power management BCD platform, where advanced power performance and increased digital processing creates the ideal match for the smaller sizes needed for power, audio, battery management ICs, with a broad feature catalog, pick and choose modular platform. Please see slide nine. In addition, the advanced power performance makes it an excellent technology solution to deliver high power to computing processors and AI accelerators within data centers. This platform fits many power and mixed signal applications and is therefore being chosen by Tier 1 companies for a wide range of applications, which are now running at high volume in our Wosu factory in Japan. We have recently delivered successful first silicon from our most advanced and feature-rich 65 nanometer BCD platform to a Tier 1 customer and are working together bringing initial products to market on this most advanced platform. Regarding progress in Albuquerque, we have initial full flow material completed while making meaningful progress in qualifying the technology to enable further ramp of both existing customers as well as new high volume power and mixed signal customers and will begin customer prototyping in the second half of 2024 towards full qualification and production in 2025 and obviously beyond. Moving to sensors and displays, our machine vision market is expected to get back to high demand levels in 2024. This rebound is mainly driven by the Chinese machine vision camera market, where our customers and their customers are gaining significant share in factory automation and embedded robotic camera systems. For this market, we are completing the development of a small pixel global shutter roadmap, scalable to various resolutions from mainstream of 5 megapixel to 12 megapixel sensors to very high resolution sensors of up to 325 megapixel, enabled by our advanced proprietary stitching technology. Printing sensors larger than the lithography frame size Please see slide 10. In the medical market, we've developed a new 12-inch, 65-nanometer lean flow as a comparative answer to non-CMOS, non-silicon IGZO, indium gallium zinc oxide, thin-film transistor technology. Please reference slide 11. This enabled customers to retain the high performance of CMOS imagers, namely low-dose X-ray sensitivity and high frame rate at cost level, now competitive to IGZO. As mentioned, as a key technology being moved from 6-inch to 8-inch, we are producing new photon counting sensors for next-generation CT scanner, a new market for us, with a silicon SAM of about $300 million. In this market, we partner with an absolute leader to provide a unique technology which allows scanning at lower doses with much higher resolution due to energy separation. In addition, we are expanding our high-end photography portfolio, capitalizing on our leadership position and learnings in the cinematography and broadcasting market, where in one instance, the end customer is an iconic industry leader. Revenue guidance for the first quarter of 2024 is $325 million, plus minus 5%, in line with industry seasonality and in spite of the impact of the earthquake in Japan. Looking throughout 2024, we target notable quarter-over-quarter sequential growth. We left 2023 with multiple powerful doors having been opened, catalyzed through the unrealized merger deal. Tower is in the best position in its history based upon financial strength, technical offerings, operational performance tied with growing operational capacity and backed by strategic customer partnerships, the strength of which cannot be overstated. We enter 2024 with strong focus on strategic value-add growth, addressing both immediate and longer-term objectives. What is this strategic value-add growth based upon? Market expansion with growing capacity and innovation, both based upon strategic partnerships. For market expansion, we continue intensifying our efforts in several markets where we see substantial demand and opportunities. RF infrastructure with very strong focus on silicon photonics and a complete power offering are two areas poised for robust growth that we are well positioned to serve. Innovation, in order to meet the evolving needs of customers and to outpace the competition innovation remains at the core of our value proposition. In this call, we've discussed several areas of best in industry figures of merit. Strategic partnership. We believe in the supernal power of collaboration. We are expanding our partnerships with existing customers, leaders in their respective markets, as well as new customers with ideas and excitement, causing them to become leaders as well. With that, I'm pleased to turn the call to our CFO, Mr. Oren Shirazi. Oren, please.

Hello, everyone. We list today our quarterly and annual financial results. For Q4-23, we reported revenues of $352 million, gross profit of $84 million, and net profit of $54 million. For the full year, We reported revenues of $1.42 billion, gross profit of $354 million, and net profit of $518 million, which included $290 million net profit impact of the merger contract termination fee received from Intel. I will start my review by analyzing the P&L highlights, followed by our balance sheet and CAPEX plans. Revenue for Q4 was $352 million, as compared to $358 million in the prior quarter, and gross profit for Q4 was $84 million, as compared to $87 million in prior quarter. Operating profit for Q4 was $45 million, and net profit was $54 million, or 49 cents basic and 48 cents diluted earnings per share. Operating a net profit for the third quarter included the net impact of merger contract termination fee we received from Intel in the amount of $314 million net of associated cost included in operating profit and an amount of $290 million net of tax included in net profit based on a 7.5% preferred income tax rate as applicable to us in Israel. Including the termination fees, operating profit for the third quarter was $362 million and net profit was $342 million or $3.10 basic and $3.07 diluted earnings per share. For the full year, revenue was $1.42 billion as compared to $168 billion in 2022. and gross profit was $354 million as compared to $466 million in 22. Operating profit for the full year was $547 million and included $314 million net from the Intel merger contract termination fee compared to operating profit of $312 million in 22. Net profit for the full year was $518 million or $4.70 basic and $4.66 diluted earnings per share, and included $290 million net due to the payment by Intel of a merger contract termination fee, compared to net profit of $265 million, or $2.42 basic, and $2.39 diluted earnings per share in 2022. Moving to the balance sheet and future CapEx and cash plans, Our balance sheet, as of the end of December 2023, totaled $2.9 billion, primarily comprised of $1.2 billion of fixed assets, mostly machinery and equipment, and $1.7 billion of current assets. Current assets ratio, reflecting the multiple by which current assets are larger than short-term liabilities, is very strong, by a multiple of 6.2x as compared to 3.9x, as of the end of 2022. Shareholders' equity increased by 29% as compared to its amount at the end of 2022 and reached a total of $2.4 billion. Our strong financial position enables us to plan the following investments in strategic opportunities that are aligned to our vision. 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, following the previously announced ST Micron partnership agreement signed in 2021. We already invested $100 million in 2022, an additional $200 million in 2023, and the remaining $200 million will be paid during 2024 and 2025. In addition, as previously announced, we will invest up to $300 million to buy equipment and other CAPEX items that we will own in Intel's FEB in New Mexico, enabling Tower to ramp up this FEB capacity and capabilities for our customers. In addition, we expect our maintenance CAPEX baseline level to remain, as previously announced, at about $200 million per annum. And lastly, we expect to invest additional cash to acquire more capability CapEx tools and other assets to expand our future technology offering, including increasing our CyG and Cypher capacity and technological offering, to enhance our flexibility to support our customers from our different sites, and change our product mix to result in a richer mix from a margins perspective. All the above is aligned to our business strategy, as well as our financial model, as presented by the company in our pre-recall in November, which financial model outlined our revenue target of $2.66 billion per annum that could be achieved by loading our existing factories at 85% utilization and that should result in $500 million annual net profit based on the specified assumptions that were outlined. Now, I'd like to turn the call back to our CEO, Mr. Russell Elwanger.