Ladies and gentlemen, thank you for standing by. Welcome to the TowerJazz Third Quarter 2013 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, November 6, 2013. Joining us today are Mr. Russell Ellwanger, TowerJazz's CEO; and Mr. Oren Shirazi, CFO. I would now like to turn the conference over to Ms. [indiscernible] Silverberg. Ms. Silverberg, please go ahead.

Thank you and welcome to TowerJazz Financial Results Conference Call for the third quarter of 2013. Joining us today are Mr. Russell Ellwanger, TowerJazz CEO; and Mr. Oren Shirazi, CFO. After managements prepared remarks, we will open up the call to the questions-and-answers session. Before we begin, I would like to remind you that some statements made to turn this call may be forward-looking and are subjected 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, F-4, F-3 and 6-K filed with the Securities and Exchange Commission, as well as filing in the Israeli Security Authority. They are also available on our website. TowerJazz assumes no obligation to update any such forward-looking statements. Now I'd like to turn the call to our CEO, Mr. Russell Ellwanger. Russell, please go ahead.

Thank you, Lenore [ph]. Welcome to our Third Quarter 2013 Results Conference Call. During today's call, I will review Q3 2013 performance, discuss our activities driving 2014 business and beyond. Oren will then provide detailed financial summary for our third quarter financial results. Our revenues in the quarter were $132.6 million, within our expectations for the quarter and representing a 6% quarter-over-quarter growth. While our revenues are below those of the third quarter of 2012, in the previous year, we had, had a high level of Micron contractual revenues. Excluding Micron, there's a year-over-year mid-single-digit growth. In Q3, we had record number of new masks entering our factories Q1 to Q3 '13 as compared to the same period in 2012, so the 34% increase or over 3,000 more new mask-sets entering into the factories. As previously explained, the photomask being released to the factory is the last formal step in the design development cycle in order to start product manufacturing. Each customer design has its own set of photolithography masks used to transfer their design pattern onto the silicon substrate. The time from mask tape-in to the factory to volume manufacturing is typically 1 year, with a net volume life of 2.5 years to 3 years from the tape-in date. The 34% increase from Q1 to Q3 as compared to the previous year demonstrates effectiveness in realizing the customer projects and the sales revenue funnel. In respect to design wins, which is the first stage in bringing new customer products into our factories, typically taking approximately 2 years until reaching volume production, we realized a 6% increase year-to-date for 2013 as compared to 2012. Design wins and the number of masks entering the factory are the most important indicators to predict revenue growth during the years to come, the latter…

Thank you, Russell, and hello, everyone. As many of you know, we have made great strides in our efforts to strengthen our balance sheet to support expected near-term and longer-term growth opportunities. So before discussing the income statement, I would like to start my financial review by providing a balance sheet analysis as of the end of the third quarter of 2013. We strengthened our balance sheet, both with the March $131 million loan extension agreement and with the $40 million rights offering, which enhanced our shareholders' equity, which we completed in the third quarter. We received aggregate proceeds of approximately $40 million comprised of 21 -- $22 million booked in the second quarter and an additional $18 million booked in the third quarter of 2013. The remainder of Series 8 warrants, which were not exercised has expired on June -- on July 2013. Earlier this year, our loan extension agreement signed in March with our Israeli lending banks improved the stability of our balance sheet by transferring short-term debt to long-term, reducing the principle maturities due in 2013 and 2014 by $75 million. This initiative enhanced our balance sheet and our balance sheet financial ratios. As can be seen in the filed reports, our net current asset, which is the amount of our current asset less amount of current liabilities, increased from $129 million at December 31, 2012 to $160 million at September 30, 2013. Our current ratio, which was 1.8x as of the end of 2012, now stands at 2.1x as of the end of the third quarter of 2013. Our cash balance at September 30, 2013, included $141 million of cash and deposits, which was an increase from the $133 million we had at December 31, 2012. Subsequent to the completion of the rights offering, our issued…

Thank you, Oren. Before we will open up the call to Q&A session, I would like now to add a general and legal statement to our results in regards to statements made, that we made during this call. Please note that the third quarter of 2013 financial results have been prepared in accordance with the U.S. GAAP in the financial tables in today's earnings release include financial information that may be considered Non-GAAP financial measures under Regulation G and related to reporting requirements as established by the Securities and Exchange Commission as they apply to our company. Namely, this release also presenting financial data, which is reconciled as indicated by the footnote below the table on the non-GAAP basis after deducting depreciation and amortization, compensation expense in respect to options and grants and finance expenses net other than interest occurred, such that non-GAAP financial expenses that include only interest accrued during this reported period. Non-GAAP financial measures should be evaluated in conjunction with, and are not substitute for GAAP financial measures. The table also contains the comparable GAAP financial measures to the non-GAAP financial measures, as well as reconciliation between the non-GAAP financial measures and the most comparable GAAP financial measures. EBITDA, as presented, is defined in our quarterly financial release. EBITDA is not required GAAP financial measure and may not be comparable to a similarly titled measure employed by other companies. EBITDA and the non-GAAP financial information presented herein should not be considered in isolation or as a substitute for operating income, net income or loss, cash flow provided by operating, investing and financing activities, fair share that our income or cash flow statement data prepared in accordance with the GAAP and is not necessarily consistent with the non-GAAP data presented in previous filings. I would like now to turn the call over to our operator. Operator?

[Operator Instructions] The first question is from Jay Srivatsa of Chardan Capital Markets.

Russell, if I looked at the comments you made, looks like you're seeing some good growth in the business, you had a lot of increase in mask-sets entering the factories. But yet your guidance appears to be slightly modest, meaning, doesn't seem to reflect the kind of growth that you would expect given some of the comments you said about the industry itself. Can you try to clarify what -- where the disconnect is and what you're seeing, overall, in the marketplace?

Sure. I don't think there's a disconnect, really, at all. As I tried to explain, the latency from the time that the mask-set enters the factory until the portion that you start seeing the fulfillment of a volume ramp is somewhere between 6 months and 1 year. So at this point, in some of the activities that we have, a lot of the mask-sets, as I said, is coming in the Front-End Module. Those ramps are very, very much based upon design cycles of the end customer, not even our customer. So if you were to look at the leader handset providers, there are certain times in the year where they cut in the new products for the new versions of their handsets, and you have to then be in line at the time that they ramp. So I don't see a disconnect at all. If you look at Q4, and if you think that there's a modest growth being talked about in Q4, certainly, the growth that we're speaking about in Q4 is very, very much at the upper end of all of the guidance that's been shown from the whole foundry sector. I mean really upper end. So I think that, that itself shows a strong trend of what's happening in the company. If you have others that maybe are forecasting no growth or negative growth, and we're still showing mid-single digit in the midrange, I think that, that's pretty decent. But the major thing of import and to keep in mind is that the masks entering into the factory, providing that the customers that we're serving and they're really are first-tier customers, that's the last stage of the design cycle and it's just a question then of the latency of the time to ramp. So for the activities that we have, it's certainly not a question of the probability of if, it just becomes the latency of the time when the ramp actually occurs.

Okay. In terms of the Indian contract, what is your sense in terms of the timing? When do you expect the final approval to be done and when do you expect to start work on that contract?

That's a very, very hard statement for me to answer -- question for me to answer as we -- as I mentioned, our consortium did receive a formal -- I forget the exact term, what was the term? In principle approval at which we had another submission that had to go in. The timelines for us are very well defined. The timeline for the government is not so well-defined. So I really don't think that I can publicly state when I expect something that I truly have no oversight or control on. I believe that it's a very, very positive step that the cabinet gave approval for the in-principle approval itself to go out. If you recall, several months ago, there were groups in the Indian government that were very against this project and it would appear, more than appear, it's a reality that the cabinet did decide to move forward. So beyond that, though, Jay, I mean, I really wouldn't want to give a timing on something that I truly don't have control over.

The next question is from Eric Reubel of Stifel Nicolaus.

Russell and Oren, it sounds like you've got some good momentum going on the mask figures that you gave us. Wanted to ask, if I could, on Jazz technology, I know that you report those numbers separately. But was wondering if you could give us a highlight of revenue and EBITDA and cash at the subsidiary?

It's Oren, I'll try to do that. Although, since we intend to file Jazz financial statements very shortly in a few days, so for now, it's not the public domain. So I don't want to enter into exact numbers, but I can tell you trends that Jazz revenues in Q3 were better than in Q2, higher, EBITDA was better. And cash flow, you can even extrapolate that even in the previous quarter, Q1 and Q2, that Jazz had lower revenues and lower EBITDA. And this quarter, Jazz has positive net cash flow, meaning cash from operation was higher than even the CapEx on top of everything, so of course, this quarter will be even better.

[Operator Instructions] The next question is from George Berman of J.P. Turner & Company.

I've got a quick question. The depreciation and amortization charges that are occurring seemingly every quarter, I see that they dropped from $38 million to $35 million. Is there a time frame when they would be reduced more material? Or are we looking, say, next year at another $120 million worth of depreciation, amortization if I just take it times 4, or a little bit less?

Yes. So thank you. Indeed, we had -- this is reducing over time, it was more than $40 million a quarter in the past and indeed, this quarter, only $35 million. And indeed, there is a trend that it is going and reduced of course, because naturally, this is a result of the establishment of FAB2 which was expensive compared to the CapEx run rate that we have today. So it's going down gradually. If you're asking about a step function, so big step function is expected in Q2, Q3 '14 to go down to the level of about $25 million, $27 million a quarter. And from the start of '15, another step function towards $20 million, $22 million a quarter.

Okay, great. Next question, maybe to you, Mr. Ellwanger. In terms of your ramping of products, what is your capacity utilization right now? Do you feel you have sufficient fab space, in particular, in light of recent speculation in the press that you might be looking at possibly buying another fab from a Japanese seller?

Okay. So with regard to the speculation, I certainly -- we don't comment on that. I will not comment on that. But on present utilizations, the Fab 1 is running very high utilization, sitting about 90%. But just for clarity, when we say 100%, that's the absolute maximum that a fab can do. That's -- some foundries or semiconductor companies will report quarters of 130% or 140%, it's because they take a lot of overrides in their utilization model. If I say 100%, or within the company, we talk 100%, that is the maximum that a fab can actually put out. But a fab could never run at that level of its maximum because your cycle time becomes crippled. So our model is to run somewhere between 88% and 92%. Just keep that in mind. I'm sorry to have to put that clarity there, but it's somewhat important. So the numbers that we have is, right now, Fab 1 is running somewhere near 90%, FAB2 is running somewhere about 60% and Fab 3 is running somewhere about 65%. So certainly, there's the ability to ramp in those 3 factories very strongly. Nishiwaki is running right now lower than any of those 3. It's a little bit hard to say what the exact utilization is because the full wafer count there is based upon DRAM, not based upon logic, and we have also some MOSFET flows that are in there now. But in Nishiwaki, we have ample room for growth. In Fab 2 for the image sensor and the power management right now, we have ample room for growth. And in Fab 3, to support everything that we believe will be ramping in the very short term on the SOI, we have the room for growth. Did that answer your question?

Yes. Are you generally happy with the way the Nishiwaki facility is moving into the Jazz family? I know that you had signed a very nice agreement with Micron to cover some of the initial start-up phase which is running off now. I'm wondering if you're pleased with the sort of the workforce that you have there? And also, the Japanese yen seems to be helping you, especially in international sales.

As far as the staff, the headcount, everyone that is there, I think it's an extremely good group of people. The engineering capability is very, very strong, has been from the start. The transfers have gone nicely, everything that's been happening is very good. We have very nice traction into that factory from non-Japanese customers. So that is moving nicely. The factory has created good cash for us. It still is creating cash, although it's on the Micron contract now, reaching a point of getting closer to breakeven. So to date, everything has been very, very nice in Nishiwaki. I can say that we did expect or could have expected quicker traction from Japanese customers themselves and that we have not realized to the rate or the speed that we had thought that we would.

There are no further questions at this time. Mr. Ellwanger, would you like to make your concluding statement?

Sure. So thank everyone that again continually shows interest and attention to the company. Certainly thank our customers for the trust in us as a long-term partner; investors, for belief in our management and our business model; and as always, we're very grateful for our employees for capability, dedication, passion, which did drive us to be #1 specialty foundry in the world. As Jay had mentioned in his question, we have had a very, very strong momentum of masks entering into the factory. Those masks will drive into revenue. It has, again, somewhere of a 9 month latency on average before it starts to ramp to volume, 18 months before they reach volume. So we're very, very excited to see the traction that we're getting in many of our sectors, if not all of them. And to realize that growth and to show the movement there into 2014, expecting then the second half of 2014 to have very strong impact from this 34% increase that we saw year-to-date in masks entering the factory. So we're very excited about where we're at and where we're going. We continue to set for ourselves high goals. And our very big focus right now, as George had brought up in his question, really deals with not non-GAAP numbers, but really with GAAP net profit. So we've reached a certain size, we have a good momentum, we have things in place. Our focus now is a sustainable achievement of net GAAP profit and we're taking actions to be driving that. We have 2 big events coming up in the very short term, one in the very short term. Next week on November 12 and 13, we are holding our TowerJazz Global Symposium very close to our facility in Newport Beach. It's going to be held…

Thank you. This concludes the TowerJazz Third Quarter 2013 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.