Ladies and gentlemen, thank you for standing by. Welcome to the TowerJazz First Quarter 2017 Results Conference Call. All participants are currently 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, May 8, 2017. 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.

Thank you and welcome to TowerJazz financial results conference call for the first quarter of 2017. 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, 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 our conference call. I thank you for joining us. The first quarter, we had revenues of 330 million beating guidance, up19% year-over-year, resulting in EBITDA of 101 million, up 30% year-over-year and gross profit of 85 million, up 38%. These results demonstrate the operating leverage inherent to our business model. We also generated a record free cash flow of 42 million allowing further flexibility to support growth plans and strategic initiatives. Looking ahead, we see growth into the second quarter and our expectations and guidance are for revenues up 345 million, plus or minus 4%. 345 million represents a new record revenue level with growth for approximately 13% and 5% sequentially. We continue to target growth throughout the year. I'd now like to discuss our various business units, reviewing main focuses, achievements, activities and growth drivers. During the first quarter we saw strong even outside demand for our RF HPA platform serving both the mobile and infrastructure markets with visibility for the mobile market well through the third quarter and optical infrastructure visibility through the end of the year. Within the mobile market, demand was strong for both our RF SOI and silicon germanium technologies. We continue to migrate more products into our San Antonio facility to enable capacity for further growth. We were informed by key executives from several major customers of designing wins or first year mobile players using our high value platforms for expected volume production in 2018, 2019. Within the infrastructure market, we're experiencing significant increase in demand for our high performance silicon germanium platform. As stated this demand is about previous customer forecast driven by new data center connectivity both upgrades and existing data centers and additional new data centers. Our high performance SiGe platform is used for many of…

Thank you, Russell and welcome everyone. I will start my review by providing our P&L results highlights and then discuss our cash generation debt share count and the balance sheet. P&L, we reported successful first quarter 2017 result which included strong year-over-year growth of 19% in revenue, 38% in gross profit, 30% in EBITDA and 71% in operating profit. This quarter resulted in $45 million of net profit and free cash flow at a record level of $42 million. We presented revenue of $330 million, up 19% year-over-year as well as gross and operating profits for the quarter at $85 million and $53 million respectively. As compared to $61 million and $31 million gross and operating profit in the first quarter of 2016. This represents 38% and 71% increase year-over-year respectively. Net profit for the first quarter was $46 million or $0.48 per share in basic earnings per share and $0.45 diluted earnings per share. For the same period a year ago net profit including the $41 million San Antonio Fab acquisition gain was $66 million or $0.78 in basic earnings. Excluding this San Antonio Fab acquisition gain, net profit has increased by $21 million as compared to the first quarter of 2016. Gross profit has increased by $23 million and operating profit has increased by $22 million. Adjusted net profit for the quarter, as described and reconciled in the tables of the press release was $50 million compared with $32 million in the first quarter of 2016, representing growth of 58% year-over-year. EBITDA for the quarter was $101 million as compared to $78 million in the first quarter last year, up 30% year-over-year. This concludes the comparison of the first quarter 2017 P&L to the same period last year. Now, comparing our first quarter 2017 to the fourth quarter…

Thank you, Oren. Before we open up the call to the Q&A session, I would like now to add the general and legal statements to our results in regards to statements made and to be made during this call. Please note that the first quarter of 2017 financial results have been prepared in accordance with U.S. GAAP in 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, amortization in acquired intangible assets, compensation expenses in respect of equity grants to directors, officers and employees, gain from acquisition, net, non-cash financing expenses related to bank loans early repayment; and other non-recurring items such as income tax benefits. Adjusted financial measures and non-GAAP financial measures should be evaluated in conjunction with, and are not substitute for, GAAP financial measures. The tables and the 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 most 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 adjusted financial measure 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 flows provided by operating, investing, and financing activities per share data or other income or 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. Ladies and gentlemen at this time we'll begin the question-and-answer session. [Operator Instructions] The first is from Cody Acree of Drexel Hamilton. Please go ahead.

Thanks for taking my questions and congratulations on the progress. Russell, did I hear you right that you said, you're increasing your RFs forecast because of the semiconductors' demand, could you just clarify that?

Yes, you did hear me correctly.

Thank you a lot for hating may be

We had said when we released the Q4 and that's when we break down the previous year into percentages of different businesses and give forecast for this year, we had said that on a year-over-year basis that the RF HPA group would be a mid single digit growth. Again we're not in the practice of breaking down by quarter what the revenues are, we do that on a yearly basis, but we're at least doubling the amount of growth that we'll behaving from the RF HPA from our forecast.

And that is primarily silicon germanium driven, is that correct and then am I right to think about your highest gross margin balance of that business?

The silicon germanium is the highest gross margin portion of that business and a predominant amount of that growth is within the silicon germanium. As I stated we've made decision to add more silicon germanium capacity in particular 0.18 silicon germanium capacity in the Newport Beach factory in order to maximize the demand that we're getting from customer up side forecast.

And on the optical side, I guess I was a bit surprised by the strong commentary given where you're entering some of the optical players, it is this -

But you've faded in out, I don't know if it's your connection or - but -

Yeah, may be. For the optical commentary I guess I was a bit surprised on the strength of the comment, do you think this is underlying health or do you think this market share gains?

I believe that there is a very, very big uptick in data centers and mainly driven by the need of increased data transfer. So I think it's - is it a market share increase of our customers, I think our customers predominately have the major market share in these segments of their serving. I'm not sure if they're growing their market share. The market itself is growing.

And then, lastly just any updates on your thoughts on the Chinese partnership or something?

We continue to believe that activity in China is important. We have multiple activities that we're pursuing within China. When or if anyone or more than one more flows, I can't commit to you nor I do wish to commit to you, but what we've stated before is that there is a lot of drive in China. The Chinese government pushing strong focus on semiconductor organic capability within China, many municipalities having them receive funds to drive that creating developments to that end and areas that I think we could value in without - and hence grow capacities without investing major dollars to do so, but being able to benefit from both our operational capabilities and our technological IP. So we continue to pursue these opportunities and at that the point that it becomes relevant to release something, we'll be very, very thrilled to do so. But we don't want to pre-state anything or step someone's expectation. We would be focused on doing an activity that will provide growth into our company and to do so in a very high value model. And when we get to a point that we should release and are confident that the activity will continue and we will do so.

Thank you and congratulations.

Thank you, Cody.

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

Yes, thank you and I got to - congratulations on excellent results.

Thank you.

A question on the incremental model, I wonder if you could may be talk about the margin difference from an incremental perspective, the RF empower businesses at the San Antonio Fab and Tonami Fab versus the incremental margin from the business that you're going to flow through the more advance stuff, which is the 300 millimeter Fab and the Uozu Fab and how do we think about the incremental model with respect to those different Fabs and how do we look at the margin structures to continue throughout the year?

Hi, yeah. It's Oren here. So from margin point of view, it's exactly like we said in the last few quarters including in the NASDAQ presentation and is publicly filed from the middle of November. This is what we filed then and what we presented is 55% to 57% incremental gross margin to each incremental revenue, that's the weighted average, that's the long-term and that's the plan towards full utilization of the Fab. Of course like you mentioned, your question is relevant, there is a differentiation between the Fab, the different Fabs. So for example the Uozo Fab that you asked to a range and mainly we expect the remittance or we'll have much better margins than 50 - incremental margin than 55%, while Tonami, the other digital pioneer Fab has lower than 55% incremental margin more like 40 something and also the San Antonio, lower than the Uozo margins, which should certainly above the 60%, 65% towards the 70%, 75%. So in Uozo we talk about business between 60% to 75% incremental margin, Tonami and San Antonio, which has power and which has trench business, which has CMOS business, we talk about 40% to 50% incremental margins of the weighted average of that comes back to the model to 55% to 57%.

That's very helpful and as we progress throughout the year. Do you anticipate more growth coming from the Uozo Fab to support advance in image sensors and some of the CMOS or the automotive business and other end markets that are driving growth and hence you'll see may be more of a contribution to the margin as you pull more revenue through the Uozo Fab?

Yeah, so obviously since the Yozo Fab is there, the 12-inch each development project and its ramping to production takes more time than it takes in San Antonio and Tonami where its quicker. So obviously you should expect that Q2, Q3 still the most of the revenue increases will come from Tonami, San Antonio, also of course Fab 2, Fab 3 and Fab 1 that Russell today gave an update to reach the 87% which is much higher utilization than in the past. So those Fabs will drive most of the growth in Q2, Q3 and from Q4 we expect also Uozo to contribute a very significant portion of the three.

So the incremental margin should kind move away from the 40% to 45% mixture from the San Antonio to more of the 55% or 60% from the Uozo.

Okay, very good. And last question from me Russell, you're seeing excellent growth in RF HPA business, you've increased the forecast, you're seeing growth from silicon germanium, but also CMOS insulator wafers, just wondering about kind of the overall trend away from going on [indiscernible] wafers into the RF business to the CMOS SOI, is that ongoing, do you continue to see that trend? The only reason why I ask is, we've seen some growth from WinSemi, who's doing mostly - coming out of Qualcomm for RF and PA components. So I just wanted to get your views on that overall trend that you're seeing?

So I think for switches the bulk of the movement has already occurred Gali Marcinide [ph] PMs to RF SOI. There are probably still some percentage of switches that are done in PM, but the bulk has already transferred. The power amplifiers are still predominantly done in Gali Marcinide. In our case we do certain power amplifiers and low noise amplifiers with silicon germanium, but the bulk of Wi-Fi power amplifiers are done in Gali Marcinide.

Okay, thank you very much.

Thank you.

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

Hi, guys thank you for taking my questions as well. If you allow, so my first question out in the HPA segment as well, Russell are you seeing any movement within the mobile bucket between SOI and silicon germanium, you talked more about SiGe more recently. I'm curious if there's any noted and consistent trend away from or I guess towards silicon germanium that you're seeing there?

We're seeing increases in some of the silicon germanium activities that we have again in the areas of certain PAs and low noise amplifiers, but it's not a movement or competition between the RF SOI and the SiGe. But we're seeing upticks in some of the SiGe business in the mobile market that we have, in particular with LNA. Again our big growth in SiGe right now, the big increased demand in SiGe is optical and at this point the uptick is within data centers.

Okay, specific to that last comment Russell, do you have a view on - you keep talking about data centers, generally shorter reach wings, do you have full visibility into that part of the market driving it or could it be more met long off stuff or if you don't have that view that will good to know as well, just want to clarify there?

I don't have personally have a deep dig view into the actual end use from our customers. I believe that Marco Racanelli, the GM of the BU would have a more granular view of what our customers are actually shipping into, but I could not answer that to any great extent with good accuracy.

Okay, that's fair enough. I have a follow up on that line. Couple of more questions for me, Russell, you made a comment around and within your image sensor business, sometime light sensor, structured light sensors for 3D sensing, I'm curious when you expect to see that market to take off and any way you can discuss through the break of your customer base there?

I'm sorry, one more time please?

Related image sensor business, you talked about time light structure, light sensor for 3D sensing, can you just get your sense of when that market starts to take for your and any comments you can make about the breadth of your customer base?

So we've press released on that in the past. We have several customers that we deal with 3D, with gesture control, the market I think is taking off, it's not the biggest portion of our revenue from CIS, but it is a market that's growing. We have several new customers that are not in volume production at this point, would promise to be extremely powerful growth drivers for our market probably within one to two year time period, but again they're not press released.

Okay, fair enough. Last question for me for Oren, Oren, can you comment on whether your expectation for gross margins for the quarter fit your incremental gross margin profile that you talked about and other quarters as well as your forward thoughts on CapEx?

Yeah, for the margins it's exactly what I said before with Raji, which is the model, we're speaking to the model with 55% to 67% incremental long term and Q2, Q3 could be still a bit lower because it's less driven by Uozo and more driven by Tonami and Uozo and Fab 1, from Q4 should be even stronger than 55% to 57% because we'll be more driven by Uozo in the mix. About CapEx, as we released to date $40 million and also previous quarter was $42 million, so we're really easing dollar commitments given in the last year that we'll reduce the CapEx from the $55 million to the 40, 42 maximum in the model CapEx and we're maintaining that even with the trends as Russell describe in his script in the beginning about some more funded CapEx by prepayments for San Antonio. So it's an amount that still keep us with not crossing the $40 million to $42 million forecast guidance for the CapEx.

Okay, great. That's what I was looking for. Thank you guys, I appreciate it.

Thank you, Rich.

The next is from Lisa Thompson of Zacks Investment Research. Please go ahead.

Hi, I was just wondering if you could just give some sort of timing perspective, I know that you could do a lot of incremental thing to increase capacity. At what point do you have to do something major to just continue the timeline uninterrupted given what you see going forward?

So you're correct. There are additional things we can do organically if we wish to grow our capacity, we have quite a bit that we can still build out additional white space that we can build out and grey space that we can make white space in San Antonio for probably an additional 50%, 60% increase in capacity. So that we would have to make a decision on probably in sort of fourth quarter this year. That's the avenue that we would with to go. As far as the models that we're pursuing and the activities that we're pursuing, we had stated that we believe that we need to have something clear in hand at the end of this year to enable capacity increase to be coming online in the end of '18, '19 timeframe.

Okay, great. That really clarifies it. Thank you, that's my only question.

The next question is from David Duley of Steelhead Securities. Please go ahead.

Yeah, thanks for taking my questions. Russell, you increased your growth rate for the RF segment I think. I think what you said on the previous conference call was kind of mid single digit, I guess I'm thinking now that it's roughly going to be 10%. But so now the sector is going to grow faster, did you change the growth rates in any of the other sectors would we kind of –whatever number we had at the beginning of the year, we would think that this is the higher number now for the annual number because you've increased the growth rate of that segment?

I think you could consider that whatever number I had in mind at the beginning of the year would be a higher number. I don't know that that's necessarily the number you had in mind, but yeah, as stated we have a factory at Newport Beach that is running very high utilization that we're changing the mix in to enable more silicon germanium to come out of. That's a greater silicon germanium capacity as well as really optimal utilization levels of the factory will grow a higher revenue than what we had gone into the year believing.

And just on that topic what are you moving out of Newport that is allowing you to create more silicon germanium capacity and which Fab are you moving it into?

So some of what we're doing is not moving out of - per say, there is older silicon germanium technologies that are no longer being used, but for which we needed to invest in some incremental tools to be able to 0.8 micron, so that's one area of moving the mix from what would now be lower margin that will not have strong demand overtime to higher margin more advanced flow. And stated a bit earlier, I believe at the beginning of the call that we were qualifying San Antonio for multiple RF SOI flows and RF control flows and moving certain customers into San Antonio to free up higher end silicon germanium capabilities in the Newport Beach factory.

Okay and how is the progress of moving, in general third party customers into the TPSCo factories, will you hit your target number that you expect to hit on an annual basis or are we going to see a little bit more with the movements amongst all of the factories?

Yeah, just to reiterate, so we're on the same page with everyone. We had set a target to hit 100 million annualized run rate in the fourth quarter of 2016, which we didn't meant in that quarter to exceed 25 million of third party and we set a target to achieve 200 million by the fourth quarter of '17, which would be 15 million third party business. We stated that we did achieve the target in the fourth quarter and we're moving forward to work towards the target up the 50 million in the fourth quarter of '17. I can't say at this point if it will be achieved, it's certainly our target and that's public information that we're talking, need to get to that number. 3

Final one for me, I'm not sure if you can answer this base on your disclosure agreements, but I'm just trying to understand how much capacity is available in the San Antonio factory to move into there and any way that you can help me understand or characterize, that will be great?

So I stated that the present utilization is 60%, what you don't know is how much of that is now third party, but the current utilization is 60%. So our target is to be running at 85% to 90% type utilization then we have that 25 points that can be added to it.

Okay, thank you.

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

Certainly, so firstly, we're really extremely excited with where we're at right now and to have had a record quarter of free cash creation up to 42 million. It gives us a lot of freedom. We left last year with a cash balance greater than our debt. In the previous year 2016, we had paid back the two major banks in Israel that we had had debt to for which we had some restrictive covenants. So we're now a company that has cash on hand and a good mechanism in avenue for continued cash creation. If we look at our growth from 2005 up to 2016, we were able to do that with very, very little resources, but through a lot of creativity and partnership and value added to our customers. We don't want to ever miss what we've built upon, which is the value add, creativity and partnerships with customers, but we now have one added tool and that's some additional cash resources to fuel different strategic and tactical plans of the company. I came across a quote not too long back that I thought was a very interesting one and it says “when our memories outweigh our dreams, it is then that we become old”. And I thought it's interesting for an individual probably not 100% accurate because I think it's more what our memories are, what our dreams and consequent actions, it is then that we become old because there is may be on an individual basis, people at their very young age have a lot of dreams, but they have no actions to make the dreams a reality and they're probably very old at the young age. But I think for our company - well, I don't think, I know for our company, we really are…

Thank you. This concludes the TowerJazz first quarter 2017 results conference call. Thank you for your participation. You may go ahead and disconnect.