Tower Semiconductor Ltd.

Good day and thank you for standing by. Welcome to the Tower Semiconductor third quarter 2026 earnings conference call. At this time all participants are in listen only mode. After the speaker's presentation there will be the question and answer session. To ask a question during the session you need to press star 1 1 on your telephone keypad. You will then hear an automatic message advising your hand is raised. To withdraw a question please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Noit Levy, Chief People, Communications and Investor Relations Officer.

Please go ahead. Hello and thank you for joining us. Welcome to Tower Semiconductor's third quarter of 2026 Financial Resource Conference Call. With us today are Mr. Russell Ellwanger, Chief Executive Officer, Dr. Marco Racanelli, President, and Mr. Oren Shirazi, Chief Financial Officer. Before we begin, please note that certain statements made during today's call may be forward-looking and subject to risks and uncertainties that could cause actual results to differ materially. These risks are detailed in our SEC filings, Form 20F and 6K, as well as filings with the Israeli Securities Authority, all available on our website. Tower assumes no obligation to update forward-looking statements. Our third quarter 2026 results are prepared in accordance with U.S. GAAP. Some data presented may include non-GAAP financial measures as defined under SEC Regulation G. Reconciliation to GAAP figures and full explanations are provided in today's press release and financial table. For your reference, a supporting slide deck is available on our website and integrated into this webcast. With that, I'll turn the call over to our CEO, Mr. Russell Ellwanger. Russell?

Thank you, Noit. Hello, everyone. Thank you for joining our call. We have much to discuss. We will speak not only to the strength of our current performance, but very importantly, on what comes next, namely, the great business and financial strength with which we will be opening 2027, the visibility we have into the future demand, the realization of investments to fully capture that demand, 2028, 2029, further customer commitments, and our significant growth in customer-aligned value creation activities for 2029 and beyond. Indeed, a long-term value creation campaign with boots on the ground providing real-time measurable financial and strategic achievements. During the third quarter, we continue to deliver record results while building upon our technology leadership and expanding capacity with increasing customer commitments to support a significantly higher level of revenue and earnings in the quarters and years ahead. At the center of this growth are our silicon photonics platforms, where accelerating AI infrastructure demand, expanding customer programs, and long-term capacity commitment continue to increase our scale and strategic position. This momentum is complemented by strong execution across our broader portfolio of differentiated analog semiconductor technologies. We are entering the strongest growth phase in our history. Our third quarter performance demonstrates that the strategic decisions we have made are translating into record revenue, expanding earnings power, and significant visibility into the years ahead. Third quarter revenue was $526 million, as compared to $396 million in the third quarter of 2025, a 33% year-over-year growth resulting in a net profit of $120 million or 23% net margin up from 14% net margin a year ago. Our fourth quarter 2026 mid-range revenue guidance is $600 million, which achievement would result in a 2026 full-year revenue of $2 billion against a full-year 2025 revenue of $1.57 billion. Achieving a $2.4 billion revenue run rate is most significant as our demand and start plan do not indicate the typical industry first quarter seasonality. To the contrary, we expect to see continued growth, hence the starting point of 2027 is targeted to be higher than the $2.4 billion annual begin run rate and greater than 45% increase as compared to the first quarter of 2026 revenue starting point. Later in the call, we will share details that underscore the strong quarter over quarter growth we are driving in 2027. Moving into our businesses, please refer to slide four as reference for the Q3 revenue breakdown by technology. The third quarter was another quarter of strong operational execution by our teams, both in the expansion and repurposing of four or five factories towards substantially higher infrastructure mix with a background of growth activities in all of our core businesses. Our silicon photonics business is experiencing exceptional growth to support accelerating customer demand We are expanding capacity across four manufacturing sites, a business that contributed approximately $240 million of silicon photonics revenue in Q3 2026 alone. With substantial capacity coming online this quarter, we expect year-end capacity to be approximately double the level that supported the Q3 2026 silicon photonics revenue. This positions us for significant revenue ramp in the first and second quarters of 2027 as the new start rates move through the fab and ship, establishing a new substantially higher sustainable baseline for the quarters ahead and thereby also achieving a full ROI within one year for the previously announced 920 million capex investments. Additionally, The execution of our released Track 1 300mm expansion is progressing ahead of schedule, with all tools ordered and slotted, with full production starts targeted for Q3 2027. Including the Track 1 300mm expansion, our silicon photonic start capacity is targeted to increase by 3x versus the level that supported the Q3 2026, 250 million SIFO or 240 million SIFO shipments. Importantly, this capacity is spoken for. Through a combination of signed agreements and contracts in advanced stages of negotiation, we have secured customer demand commitments for both 200 millimeter and 300 millimeter production, and now having extended it to include 2029. At which time, our incremental Track 2 planned capacity ramp is well underway, ultimately quadrupling our 300 mm Japan capacity. Of note, all expansion is planned to continue to be self-funded. In addition to serving the rapidly growing market largely of pluggable, scale-out transceivers, we continue many activities with Tier 1 customers that take advantage of new opportunities expanding our served market. The most significant of these is the change in form factor towards Near Package Optics or NPO that promises to add scale-up opportunities to our clearly established leading position in the scale-out market. In the view of most analysts, NPO scale-out can double the optical transceiver market. To this end, we are prototyping NPO products with more than 10 of our top customers. can more often integrate transmit and receive functions in our SIFO die expanding our silicon SAM versus the traditional pluggable market where normally only transmit function is built into the SIFO die. NPO can also improve our position in the electrical IC CyG market as most implementations of NPO will replace the DSP to improve cost, power, and latency with CyG TIAs and drivers and at that with greater footprint due to the increased incorporation of Equalizer functionality, expanding our Sci-G market opportunity. To this end, we have announced this quarter a substantial capacity agreement with Semtech and are seeing further unprecedented growth opportunities for our Sci-G business. Longer term, we are building the capability to integrate new material into our SIFO platform to further expand our served available market. In one such example, we announced initial production for new photonics with a new technology where we integrated indium phosphide lasers within our silicon photonics dye. This is done through a dye to wafer attach of indium phosphide epi chiplets further processed in our factory to create a final dye that incorporates indium phosphide lasers within our silicon photonics. As this technology ramps, we gain access to the laser market and additional multiples of increase in serviceable market. This dyed-away-for-technology is now being deployed with other materials, such as thin-film lithium niobate, to provide 400 gigabit per lane, next-generation, differentiated products to our Tier 1 lead customers. Beyond the optical transceiver market, our SIFO platform, combined with heterogeneous integration capability, has emerged as a go-to solution for silicon photonics-based optical circuit switches. Silicon photonics-based solid-state OCS are emerging as a strong contender against MEMS or other niche solutions because of fast nanosecond level switching speeds, the CMOS manufacturing scale, and compatibility with the CPO-NPO ecosystem for tighter system integration. Finally, We have been a significant player in coherent SIFO products for Marvell used in data center connect applications as we have discussed in the past. This technology is now being evaluated for inside data center scale across applications which could as well significantly expand the sector of the SIFO market where you already have strong position and differentiated technology. Longer term, we are also investing in several scale up and scale in and Wide and Slow Technologies, which promise high total bandwidth by creating large parallel links at lower speed through the use of micro LEDs and or Vixels. We have several active engagements ongoing with Tier 1 customers with a potential of high volume in a new facet of the optical communication market. As stated earlier, NPO is providing an expanding market for silicon-germanium TIA and drivers resulting in unprecedented customer demand being served now from three 200-millimeter factories and one 300-millimeter factory. In tandem with our capacity expansion, we continue to advance our technology roadmap and are happy to report that our H6 next-generation solar generating technology is seeing strong design in momentum already in production for the most demanding products. The strength of our technology was also reflected recently when Semtech, a strategic silicon-germanium partner of more than two decades, received an innovation award at ECOC 26 for its optical interconnect solutions. Our 300-millimeter capacity corridor in Agrate, Italy, delivered its highest RF-SOI revenue quarter to date. We also set new records for the number of product tape outs for Fab 10 Demonstrating the strength of our long-standing customer relationships and the exceptional execution by our 510 team to deliver the technology roadmap extending the design wind momentum on our industry-leading 300mm RF-SOI platforms. We expect this trajectory to continue over the coming quarters. Demand for Towers BCD technologies continues to strengthen across both 200mm and 300mm platforms with about 10% year-over-year growth. This growth is driven not only by the rapid expansion of AI and cloud data centers, but also by growing customer success in mobile and automotive applications. This momentum is reflected in increasing customer commitments with several strategic accounts entering into long-term agreements at higher ASPs, resulting in forecasted 20% higher blended prices for 2027 versus 2026. In CIS and displays, we have started production of a new high-speed global shutter sensor for high-end video cameras with one of the DSLR MLC industry leaders. Together with our lead customers, we are driving next phase of business growth, building demand toward the significant additional capacity that will come online with the WOZO expansion. We're also working closely with our OLED on silicon display customers to provide capacity for their expected steep ramp in 2027. Looking at utilization during the third quarter, all of our 200 millimeter fabs operated at utilization levels of 85 to 90 percent. Our 300 millimeter 12 inch fab continues to be fully utilized well above our 85 percent utilization model. and as stated, substantial capacity is being added to all sites in accordance with extreme growing demand. To summarize, we entered the second half of 2026 with strong business momentum supported by broad customer demand across our differentiated technology platforms and continued high utilization across our entire manufacturing footprint. Importantly, the strength we see extends beyond the current quarter, well beyond. Customer engagement, design activity, and demand visibility continue to reinforce our confidence in growth opportunities ahead, enabled by the unique significant value which each of our specialized analog technologies provide. Our prospects are very good and even getting better with all of our key business units experiencing increased demand with expected revenue growth throughout 2027. SIFO and Silicon Germanium are experiencing unprecedented growth, having achieved majority share of pluggable scale-out market. We are not only enjoying the substantial market growth of this segment, but by having close partnerships and cooperations with the market leaders, we are enjoying rich developments, increasing our served market, targeting to continue proliferation of our differentiated technologies into multifaceted applications. The number of advanced MPO engagements is just one of the many indicators of rich partnerships capturing the future. As a summary point, our Q4-26 SIFO annualized run rate is expected to exceed $1.1 billion with significant target further increases in Q1-27. We will end this year in an extremely exciting position. With that, I'd like to turn the call to our CFO, Mr. Oren Shirazi. Oren, please.