Ladies and gentlemen, thank you for standing by. Welcome to the TowerJazz Second Quarter 2016 Results Conference Call. All participants are present in listen-only mode. Following management’s prepared statements, instructions will be given for the question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, August 4, 2016. Joining us today are Mr. Russell Ellwanger, TowerJazz’s CEO and Mr. Oren Shirazi, CFO. I would now like to turn the call over to Ms. Noit Levi, Vice President of Investor Relations and Corporate Communications. Ms. Levi, please begin.

Welcome to TowerJazz financial results conference call for the second quarter of 2016. Before I 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, F-4, F-3, 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. 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, Noit. Welcome to all of you, and thank you for joining us today. The second quarter of 2016 was our strongest quarter to-date with the record revenue of 305 million and EBITDA of 87 million, reaching and approximate 1.2 billion and 350 million annual run rate respectively. We showed increased gross and operating margins resulting in a net profit of 38 million or 13% net margins and breaking 150 million net profit annualized run rate. We continue to experience strong even excess customer demand across our specialty business units driving a third quarter mid-range revenue guidance of 325 million, up 33% year-over-year and with the current roll-up we have an indication of further growth in the fourth quarter of 2016. To support the customer demand and to enable this substantial growth from a $1 billion Q4 annualized revenue run rate to $1.3 billion annualized Q3 mid-range guidance and with the expected further growth in Q4 ’16, we’ve continued our operational strategy of, one, cross qualification and off-loading activities within all of our 200 millimeter factories including the newly acquired San Antonio factory providing us with a more optimized global capacity flexibility, two, we added additional capacity in SAP 2 in Migdal Haemek and in SAP 3 in Newport Beach and three, using available capacity in our TPSCo factories for new third party business. Referring to which TPSCo, third party wafer shipments in the second quarter of 2016 were up 50% from levels in Q1, 2016. We remain in line to the target we announced in 2015 namely to achieve a 25 million third party fourth quarter revenue from the TPSCo factories. In addition, last quarter we began operating our new 8 inch fab in San Antonio. As you may remember, the facility provides us with added capacity and…

Thank you, Russell, and welcome, everyone. Thank you for joining us today. The financial statement, we presented for the second quarter of 2016 show record performance for Tower. This includes record revenue of $305 million for the second quarter, record EBITDA of $87 million, record operating cash flow generation of $82 million, $27 million of free cash flow and the GAAP net profit of $38 million for the quarter. We prepaid the entire amount of loans all to the Israeli Bank by raising money from issuance of long-term non-convertible bond. This reduced our cost of capital, while releasing liens and replacing district covenant under the bank loan agreement with might lighter covenants enabling better business in financial flexibility. We present a record cash in short and deposit as of the end of Q2, totaling $311 million and very strong balance sheet financial ratios. I will now provide the P&L [ph] results analysis highlights for the second quarter of 2015 and the first six months of 2016 and then discuss our balance sheet and cash flow. All numbers will be provided on a GAAP basis unless otherwise stated. Revenues for the quarter, a record of $305 million, compared to $236 million in the second quarter of 2015, an increase of 29% year-over-year and the 10% growth as compared to $278 million reported in the first quarter of 2016. Gross profit for the second quarter of 2016 was $73 million reflecting 24% gross margin and represent again increase of approximately 39% as compared to $52 million gross profit in the second quarter of 2015 and an increase of 19% as compared to $61 million in gross profit in the immediately preceding quarter. Operating profit was $40 million for the second quarter of 2016 and 87% increased as compared to $22 million in…

Thank you, Oren. Before we will open up the call to the Q&A session, I would like now to add a general and legal statement to our results in regards to statements made and to be made during this call. Please note that the second quarter of 2016 financial results had been prepared in accordance with U.S. GAAP and the financial tables in today’s earnings release includes financial information that may be considered adjusted financial measures and non-GAAP financial measures under Regulation G and related reporting requirements as established with the Securities and Exchange Commission, as they apply to our company, namely this release also presented financial data which is reconciled as indicated in the table or in the call on an adjusted basis, after deducting, one, amortization of acquired intangible assets, two, compensation expenses in respect of equity grants to directors, officers and employees, three gain from acquisition, net, four non-cash financing expenses related to bank loans early repayment and five, other non-recurring items such as acquisition related costs and Nishiwaki Fab restructuring costs and impairment. Adjusted financial measures, the non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, GAAP financial measures. The tables and earnings release also contained the comparable GAAP financial measures to the adjusted financial measures as well as the reconciliation between the adjusted financial measures and the comparable GAAP financial measures. EBITDA is reconciled in the tables from GAAP operating profit. EBITDA is not a required GAAP financial measure and may not be comparable to a similarly entitled measures employed by other companies. EBITDA and the adjusted financial measure presented herein should not be considered in isolation or as a substitute for operating income net, income or loss cash flows provided by operating, investing, and financing activities per share data or other income of cash flow statements that are prepared in accordance with GAAP and is not necessarily calculated or presented on a basis consistent with the same or similar data presented in previous communications. And now, we will open up the call for Q&A. Operator?

Thank you. [Operator Instructions]. The first question from Cody Acree, Drexel Hamilton. Please go ahead.

Thanks guys for taking my questions and congratulations on the strong results and progress. Russell maybe if you could, if we get start with your Q3 outlook with the 20 million and you’re expecting at the midpoint for growth. Can you just maybe stratify is any waiting and what will be accounting for that or contributing to that growth?

I’m sorry. I really didn’t quite follow. What growth rate you’re referring to, what did you say? You said something 20 million.

There is sequential growth that you’re guiding to.

Oh, I’m sorry, okay.

Yeah, any help with the waiting or the contributions that you expect from our different divisions.

As stated, we really do see growth across all the business units, we certainly see a very strong contribution of growth from CMOS image sensor, particular in the industrial vision and in the medical we’ll see a very nice uptick on that. If we look at the even model platform, if we were to take the first half and compare that to the second half, we were seeing somewhere about an 11% growth of an already a very strong growth in first half and -- but I don’t see really any single business that’s down second half versus first half. So across the board, we see growth probably the single biggest growth on a percentage basis would be the image sensor and probably the next biggest growth on a percentage basis would be the power management.

Russell thank you that and when you look at that CIS and the growth that you’re seeing here, I guess I wouldn’t expect that some of those underlying end markets whether it be machine vision or maybe particularly medical are growing aggressively, individually, maybe I am wrong about the underlying health of those markets or the growth rates. Is this primarily your share gains and your customer share gains that’s driving us or are you seeing a lot of underlying strength in those applications as well?

I think in general, the area of sensors is growing. Machine vision, industrial vision, it’s a growing area, the exact CAGR I couldn’t, of the top of my head, tell you what that is at the moment. It’s certainly is a growing area. Our customers are definitely growing share and we have grown share within this market. A lot of what’s happening right now are wins that we really had a good year or year and a half ago that are now moving strong into manufacturing. These are very highly integrated parts sitting above 40 photo layers and at this point we are realizing the shipments of these products in the manufacturing note, not just on the prototyping note and I expect that, that will continue to grow. In the area of the medical, that has a very, very long cycle of adoption but once it is adopted into the market, it stays really very, very long, very difficult to replace once its qualified be it for the extra-intraoral [ph] or for direct medical device but as stated there is quite a big growth in that between second and the third quarter and being maintained in the fourth quarter.

And Russell, do you think that the next generation products at about 110 nanometer accelerate that growth?

The next generation of products with a 110 nanometer will certainly prevent us from losing market share and I believe that they could accelerate growth, but we won’t be seeing a manufacturing volume from 110 nanometer activities until most likely at the earliest the second half of ’18 and beginning of ’19.

I see. Thank you for that. And then lastly --.

Cody just to state, one of the important things about continues roadmap be it within medical devices, cameras and general be it within RF space or power management space. Having developed a reputation and bringing on leading customers in every one of our segments. Very few customers are willing to design to you and take substantial volume from you without an assurance that they can stay with you multiple years. They start designing, they learn your design catch, you other designers, we have a very strong and stated policy in the company that all major developments have to be aligned with first year customers. So with our major customers, we don’t just work on present generation not even just next generation. But we’re typically working on features that are two or three generations out to make sure that at the time of platform is out that it does meet the customer need immediately and that will be taping in this. So and I’m just saying this is add-on to your previous question. So the ability to grow market share in present generations is very, very related and reliant upon having future generation roadmaps that customers believe they’ll be able to continue design to you win. Very few of the quality of customers that we work with right now is a customer that we would take the effort to learn your design environment for a single generation product.

Thank you for the color on thanks Russell. And then lastly, any update on the capacity of issue to 1.6 billion. If I take any growth in December and annualize that and then apply even a moderate growth rate for 2017. You can easily get into that kind of $1.5 billion range next year. With the existing footprint, I guess do you have further ability to expand within clean rooms beyond the 1.6 billion or is that going to take the next transaction to continue grow beyond that?

At the San Antonio factory, we’ve actually done some [indiscernible] exercises as to how we can increase the capacity there by another 20% to 30%. And I think is very feasible by moving a few walls to be able to do without having to do any per-say major construction by taking some grey areas and making them into white areas. So there is certainly organically the capability to so growth beyond the 1.6. However not without investment, but would be an investment or we have a very short-term ROI. However, we are and have been active always at looking at deals that we give us incremental capacity. I think our model has been a very good model of taking on capacity being that were analog. We don’t need to build Greenfield with multiple billion dollars of investments. We have been able to with the Panasonic creating, TowerJazz Panasonic semiconductor most recently with the San Antonio factory from Maxim to acquire an asset, in both cases having a strong negative goodwill. So the one-time benefit on the net profit. Now we didn’t do it for the one-time benefit, but basically the ability and you see that in the negative goodwill the ability to take on a very, very good asset under a model that’s a win-win for both the seller and ourselves, to where we have a capacity commitment from the seller so that we don’t take on ourselves our running cost obligation, also the plan to use the utilization that maybe doesn’t materialize and hence not offering a downside to the company or for the shareholders by having a glutton cash to try to maintain something during a period, where you’re ramping third party business. So that being said, we’re always have been and we’ll continue to be active in…

The next question Rajvindra Gill from Needham & Company. Please go ahead.

Yes, thank you and congratulations as well on very strong results. A question Russell on some of the new products in the RF business, can you talk a little about the marketshare dynamics that you’re seeing at your customers with respect to this low power noise amplified and integrated WiFi PA. I think the last earnings call you had talked about kind of low levels of revenue in the second half of 2015 ramping to a substantial business going forward. Can you talk a little bit about the ramp of that new product cycle at your customers and how does that resulting -- is that resulting in marketshare gains against global foundries or other. Thank you.

Certainly the IG based PA, IG based LNA, it’s I believe a significant revenue at this point and continuing such. If I look at this, I think I gave this number. Second half, first half by what we’ve seen now and the customer demand, we should see within the mobile platform an increase of about 11%. If I was to exclude the SiGe there would be an increase of 8%. So you have 3% or I’m sorry 33% of the growth basically is based upon the SiGe platform the second half versus the first half. It’s been very substantial and I believe that it’s an excellent platform especially going forward. And as stated the next generation platform PDK has been released as well. The specific number, I wouldn’t feel comfortable to give right at this moment, other than just, that is a substantial piece of business that we see growing.

And can you maybe discuss the trend of prepayment, customer prepayment. Is that trend accelerating kind of emphasizing this idea that your customers need to get, they want to prepared for capacity in advance. Is that happen changing throughout the year and they ramp and your RF customers ramp for new phones and major customers in North America and China?

So first I clarify the prepayments that we receive was not solely for RF. I wouldn’t want to answer the question in that regard, because it wasn’t just for RF. It was for other applications in addition to RF. But no we just completed anything that we have planned on our capacity expansion. We have stated that in Q4 we will see our CapEx going down closer to the 40 million quarterly run rate that we wish to be maintaining and in Q1 to achieve the 40 million and to keep it that rate. So we’re not looking at any other organic capacity expansion and that doesn’t mean we wouldn’t have one or two tools show up for a capability here or there, that can only happen. But capacity expansion that we have planned or we need to be each of doing is pretty much taken care of. Some of that dealt with as well, the added capacity that we now have in San Antonio and the amount of time that it takes to qualify those platforms in order to run it in San Antonio. Something that I said during the script was that the qualification of the RF platforms there we saw critical to the volume that we needed to have in 2017. Certainly, we did not have that capacity coming into 2016 and although we knew that we would have it, the platforms could never have been qualified closing the deal on February 1st to start shipping in the second and third quarter. So the capacity right now, we think is all in place as we’ve stated. We have capacity to ship $1.6 billion. So it’s not a capacity issue right now and hence we are not looking for any customer prepayment to add organic capacity. Did that answer your question, I hope it is.

Yes. It did, clarified it. And last question again on the RF side. So you’re ramping a lot of your major customers with these new products. So each of these modules have 2 to 4 ICs, which includes switches, antenna and power amplifiers, low-noise amplifiers, and I want to get a sense of the competitive advantage that you guys have in terms of your process technologies over the competition. Particularly around the RF SOI, your SiGe technology. Can you -- maybe some -- maybe a little more detail in terms of how are your processes technologically superior to your competitors as the RF guys move into these integrated modules?

So, if you’re looking at the SiGe based L&A or SiGe GPA, there is just a question of trying to do a very, very advanced switching speed on a SiGe platform and being able to incorporate other functionalities, the RF CMOS as well as the L&A, the switch, the power amplifier. Are we strongly differentiated against our competition, we certainly had a very nice PR from Skyworks Solutions about going in to manufacturing with us in a more advanced platform that’s being released. If you look at the RF SOI, I believe as stated that the most recently released flow in QT-8 has substantial advantages with regards to the switching speed, R1-COF as well as the linearity and we have increased roadmap going on there to where we had spoken off having a sub-90 femtosecond platform in our 300 millimeter factory and Wozu and TPSCo for where we have supplied customers with samples. So the differentiation, again it comes into what you do within the silicon and how do we partner with customers to make sure that the silicon we’re producing meets the feature requirements that they have.

And given our expertise in these processes, are you going to see a trend where the, your RF customer starts to outsource more of the foundry to external suppliers like yourself and can you talk about what percentage of the foundry they do internally versus externally and where that could cost as we go?

I think if you look at it without being specific about any of our customers, but if you look at the leaders in the front-end module they all have their own gallium arsenide capabilities, none of them have really an RF CMOS. So anything that’s done with RF SOI is done outside of their own factories, anything that will be done with silicon germanium is done outside of their own factories. How much have they moved from gallium arsenide pHEMT to RF SOI and I think that the market there is about 85% movement to the RF SOI. And as far as the gallium arsenide for a power amplifier, the predominant market has stayed with gallium arsenide for power amplifier. But as far as any specific one of our customers, and how much foundry outsource did they do versus what they do internally, that’s really a question that should be asked to them, not to be. As far as what we make for our customers, they do not have capability to do it inside their own factories.

The next question Richard Shannon from Craig-Hallum. Please go ahead.

I just have a few questions. So, maybe following up on your commentary regarding TPSCo third party revenues and Russell, I think you said last quarter you expected to exceed your first stated goal of getting to a $25 million run rate by the end of this year and you’re kind of echoing those comments this quarter seems. Are you saying you don’t expect to exceed it anymore, can you just clarify that relative to your comments from last quarter?

What I talked about was a 100 million run rate, so the annualized 100 million run rate or the 25 million quarter. We still expect to exceed the exact 25 million number.

Okay. And I apologize, if you were more precise in your opening comments, I missed those, but can you tell us what areas you are driving that, as you get to the $25 million number and then even, I think you’ve given a goal is getting to $50 million a quarter number by the end of next year. What would drive that as well, different areas or the same?

It’s the same, but more of sort of speak. I don’t want to sound obtuse, what’s really driving a lot of the immediate growth now is the qualifications of the power management flows and the mixed-signal flows in the Tonami factory. So a lot of the growth that we’re seeing there is growth because of a cross qualification, where we needed to have greater capacity to meet customer needs. And then in addition, we have other platforms that have been developed that were not across qualified platforms that is also ramping at the moment. And some of that what we expect will be a big portion of the growth in 2017 will be the 300 millimeter image sensor products, which is not a substantial part of the 2016 revenue.

Okay. That’s kind of what I thought it was, but thanks for confirming. Thanks for that response Russell. Couple of more questions from me. I think you mentioned that your top 10 customers excluding Panasonic and Maxim grew something like 30% year-on-year. What is that outlook look like with that group of customers as you look into the second half or even further if you carry to take it that far, be curious to know what that looks like?

It’s a good question, I haven’t done the analysis. If we include Maxim, I can say it would be much more than 30%. For a fact of the acquisition of the San Antonio factory. I really don’t know off the top of my head and I wouldn’t want to be misleading. I assume [Multiple Speakers].

Okay. I think follow-up later, when you can try to do that analysis, but it’s an interesting comment to make so, I’ll move on here. I think you mentioned, you’re expecting further growth in the fourth quarter your typical trends in the fourth quarter last year existed grow. Are you suggesting that you expect to grow at least in line with your averages in the fourth quarter or could it be even higher, if you could just delineate that comment a little more that would be great to hear?

I wouldn’t want to set an expectation right now for the fourth quarter other than we’ve forecast additional growth for the third quarter. The 305 to 325, I think is quite significant and the major reason that I wanted to point out the fact of having additional growth in the fourth quarter is because we see it being sustainable. The exact number, again I wouldn’t want to give the target right now. But we do see growth and for me to mentioned growth it wouldn’t mean going from 325 to 326.

Okay. Fair enough. My last question, you called out exposure into the automotive market. I think you mentioned, you believe as much as 22% of your total sales or related to automotive in some fashion.

I believe at least 22%, why do I say that. A good amount of discretes going into automotive applications and I don’t have visibility as to where our customers sell the discretes into. The discrete customers that we have, the bulk of them are well known has been press released, that’s Jase’s Iconics, its Infineon having acquired IR and its fair child. A fair amount of the discrete products that we make, the power discretes go to automatic but I have no breakdown of that really whatsoever.

Okay.

But the 23% is that which I know, which does not included in the breakdown of the discrete.

Got it, okay, interesting. Within the parts that you do know about any thoughts on what the historical or most recent trend on growth rates has been there?

I think it’s been very flat, I mean the revenue has grown in the company, as a company where are we selling into a good amount of automotive. We have image sensors that are going into automotive, that continue to that are growing within that. We have a nice growth that will be coming on, really a nice growth in the area of automotive radar, but this is a silicon germanium platform for collision avoidance and it is qualified. It is now ramping into production and I expect sometime in the Q1 timeframe to be able to release that entire ecosystem of product which is very substantial and we have within the TPSCo factories a good amount of automotive that’s produced there and that is very, very stable if not growing and we have within the San Antonia factory automotive that has produced there of which I, we’ll never give a breakdown specifically of what Panasonic for their end product is putting into automotive or Maxim or their end products are putting into automotive. Again, that’s for them to say, but that’s where the 22% is made off.

Got it, okay I appreciate all that profile is good to hear. All my questions thank you guys very much.

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

Certainly. Well I really do thank everybody for the questions, I think they were very good questions. I appreciate the interest in the company, as stated during the call and really as per Oren’s concluding remark, it really was a very, very strong quarter for the company. We have stated for a while what our strategy is within the analog space. We have had this acquisition model if you will for a good period of years and I am very, very happy that at this point the numbers are verifying that our strategy is solid and that our tactics to implement the strategy have been good. As stated, we continue to focus on our margins, on increasing the free cash flow and the analogous net profit that that is dependent upon. So we look forward to the next quarters, the next years. We thank you for your interest in the company and for your loyalty to the company. We will be next week at the Oppenheimer 19th Annual Technology Internet & Communications Conference in Boston on August 9th. I’ll be presenting there, I’d love to meet whoever is available to be there, it would be enjoyable. On August 30th, we will also be presenting at the Jefferies Semiconductor Hardware & Communications Summit in Chicago Dr. Marco Racanelli will be presenting there, he is the Head of the RF business unit. So any of you who would like to engage and vary in-depth discussions with him on the RF space. Certainly he can get into it to much greater depth than I can, so I think that could be enjoyable for you as well. So that being said, look forward to meeting you at one or both of these conferences. And if that’s not possible, you can always meet us here in Migdal Haemek and often time in San Antonio or Newport Beach. So thank you very, very much. And have a good night.

Thank you. This concludes the TowerJazz second quarter 2016 results conference call. Thank you for your participation. You may go ahead and disconnect.