Thank you, and welcome to TowerJazz Financial Results Conference Call for the Third Quarter of 2019. 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 Form 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. Please note that the third quarter of 2019 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. 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. During the third quarter of 2019 our revenues were $312 million with EBITDA of $75 million and free cash flow of $30 million. These numbers represent quarter-on-quarter of 4% and year-over-year 11% organic revenue growth being defined as total revenue, excluding revenues from Panasonic and TPSCo fabs and revenues from Maxim in the San Antonio fab. In addition, we recorded sequential increase in gross and operating profit, EBITDA, net profit and free cash flow. This profit and cash flow generation continues to strengthen our balance sheet and at quarter-end we recorded record shareholder equity of over $1.32 billion as compared to $1.24 billion at year’s begin with over $400 million in net cash. Our fourth quarter guidance is $312 million with an upward or downward range of 5% Oren will provide full financial details later in the call. Now to discuss our businesses. First, the Analog IC Business Unit, the third quarter saw solid quarter-over-quarter growth in our RF mobile segment led by a steep production ramp in 300-millimeter RF SOI, which has now resulted in the highest RF SOI revenue in the Company’s history. Looking into 2020, a strong design win pipeline in both 200-millimeter and 300-millimeter RF SOI, coupled with the 300-millimeter capacity expansion announced last quarter, positions us for good growth throughout the year. Growth in this segment for us has been a function of market share gain in both U.S. and China as well as overall market growth with expanded RF front end content in 5G handsets which are expected to be deployed starting in 2020 and anticipate to continue and accelerate through the next several years. In addition, we are working on breakthrough RF technologies such as RF MEMS being the only foundry to successfully deliver RF…

Thank you, Russell, and welcome, everyone. Thank you for joining us today. I will start by providing the P&L highlights for the third quarter of 2019 and then discuss our balance sheet. Revenues for the third quarter were $312 million, representing both year-over-year and quarter-over-quarter organic growth. We achieved strong results for the third quarter, demonstrating quarter-over-quarter improvement in all our margins and cash flow indicators. Revenues for the third quarter of 2019 were $312 million, as compared to $306 million in the prior quarter. Compared to 2018, revenues for the first nine months of 2019 reflect organic growth of 7%, and revenues for the third quarter of 2019, reflecting 11% organic growth as compared to the third quarter of 2018. Note, we define organic revenue as total revenue, excluding revenue from Panasonic in the TPSCo fabs and revenue from Maxim in the San Antonio fab. This 11% organic year-over-year revenue growth and some efficiency measures, enabled us to mitigate a large portion of the Panasonic revenue and margins reduction caused by the March 2019 contract amendment, as announced on March 26, 2019. Gross profit for the third quarter was $58 million, up $4.9 million when compared to the second quarter of 2019 gross profit, reflecting 80% incremental gross margins as compared to the revenue increase. Operating profit for the third quarter was $23 million, which is $5 million higher than prior quarter operating profit, reflecting 82% incremental operating margins as compared to the revenue increase. EBITDA for the third quarter was $75 million, up $5.2 million when compared to the prior quarter, reflecting 86% incremental EBITDA margins as compared to the revenue increase. Net profit for the quarter was $22.2 million and diluted earnings per share was $0.21, higher than $20.9 million and $0.20, respectively, recorded in the previous…

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question is from Cody Acree of Loop Capital. Please go ahead.

Yes, thank you very much for taking my questions. First off, Russell, could you just talk about puts and takes that went into your December quarter guidance? I think, given what we've been hearing out of some component vendors, but largely out of the end OEMs in both the data center and in the RF markets. What is seem to have naturally led to some more growth, if not in the September, definitely in the December quarter, could you speak to that, please?

Certainly, so as stated, we have not yet seen a rebound in data center. I am not sure we'd be referring to that as "strength" within data center from our end customers. But the strengths that they might be seeing again is off of inventory that they already have in hand. So as stated in direct communications with lead customers, they believe now that they have somewhere of a quarter or two, a bit more than a quarter of inventory to burn off. So our order level in data center has not yet rebounded even close to what it had been in the run rate of the end of 2018. I did state that we are seeing some stabilization there due to the fact of 5G infrastructure. But the amount of parts for 5G infrastructure and the size of the parts is at this point, not enough to compensate fully for the reduction that we've seen within data center. But that data center, we are very optimistic about from recent dialogues and updates that the orders will be coming back within Q1. And the shipments will be coming and ramping in Q2 throughout the year of 2020. So that's one area. And the other area that I had mentioned that we had very, very nice growth in, okay, so that's a downside. The other strong area of down for us is within power discretes. It's been press released who our main customers are within there. And – but it's not just our main customers, the entire power discrete market remains weak. That will also pop back at some point here. But it is weak at this moment. So those were two of the bigger or maybe the two biggest downs that we have against our base revenue that we were…

Yes, it is. Thank you, Russell. Oren for you, if you would, maybe follow those – that same walk with gross margins, if things happen as in the timing expectations that Russell laid out, how do you expect quarterly trends of gross margins to follow?

Yes, I believe our model will sustain the same incremental about 50%, 55% incremental margin. If the growth is from 5G and/or Uozu, it should be about 50%, 55%. And other business like power discretes, it's a little bit below, but the average is 50% to 55% incremental gross profit to any incremental revenue.

Very good. Thank you both.

The next question is from Quang Le of Credit Suisse. Please go ahead.

Hi, thank you for taking my question. Russell, you mentioned that your capacity will be installed in the middle of 2020. In that case, am I right to say that your first half of 2020 will still be rather sluggish in terms of revenue. I can see that the first quarter normally is down quarter-over-quarter, with Q2 was slightly up. Is that what we should be expecting in 2020 as well?

So I've not yet guided the first quarter, and you're correct. First quarter is typically seasonally down for the entire market. However, the capacity that you're speaking of, it's not 100% correct. I said it would be fully qualified by – within the first half of the year. There's incremental capacity increases throughout the entirety of [indiscernible] shipments will have certain step functions, but I suppose over the – on a start basis, it will be somewhat monotonic increase throughout January, February and March started off throughout the entire first half. So no, a sluggish first half, I don't really believe at all. Meaning there's a good amount of activity as stated to drive up utilization in our eight-inch factories. And I believe that, that will all occur. So the 60% utilization in Uozu is right now bottlenecking 60%. As the year goes on – meeting the 2020 year goes on, those utilization levels would come up against the present photo capacity. And it won't just be the fact of that starting Q3 the utilization will go up. It'll go up throughout the year, meaning throughout the first half. But there's many, many other activities that are equally accretive to our business. The big thing that will have a momentous impact is the consumption of the present inventory and data center silicon germanium. And that has a very good impact in both ways, increases utilization. It's also extremely high value parts. So I don't – hopefully, I answered the question but no, I do not expect a sluggish first half but I have not guided to Q1.

I see. Got it. And can I ask for your silicon germanium revenues that you had this quarter? And what do you expect next quarter?

I really don't want to give specific numbers. I don't typically do that. We did in the Q&A last quarter state what we thought the 5G revenue would be, I said 32. And that number was actually exceeded slightly, so it was above the 32. And there will be against whatever the Q3 number turned out to be, which, as I stated, is I did give the 32 answer in the Q2 Q&A. So it's above the 32, but Q4 at this point it looks like it will be about 10% higher.

Got it. Thank you.

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

Yes, thanks and congrats on a lot of good momentum on some of these new products.

Thank you.

Yes, my pleasure. The ramp in 300-millimeter for RF SOI, I was wondering if you could kind of describe some of the dynamics there. Is this being driven by 5G smartphone ramps that you're seeing, is it being driven by kind of market share gains? You had mentioned some market share gains in U.S. and China. I just want to get a little bit more color on the record revenue that you've gotten in smartphone in 300-millimeter RF SOI. And then as we go into next year, there's been a lot of positive commentary about the overall 5G smartphone market in terms of overall units and replacement cycles, et cetera. And we know that the RF content is going to be going up. So just any kind of qualitative color and how we should be thinking about RF SOI, is that the smartphone component going into next year, after a pretty strong year this year.

Two very good questions. So the 300-millimeter RF SOI ramp, I believe very close to 100% market share gain for us, I guess the portion of it is dealing with one customer who has gained major market share for themselves in areas that we weren't serving previously. So that I believe if it's not 100%, it's very close to that. As far as the growth there being market share gain. Now, how much of it is market growth within the market share gain, it's a little bit hard for me to state. If I look at 5G as a whole, it would appear that, and this is from a Yole report that is different from what some large front-end module makers are saying, but you always talking about us about a 17% increase in RF content on 5G for the next years. And I believe it's probably correct because it's not just the fact that 5G is competing against 4G. 5G is actually eating up a previous 2G and 3G market. And where people had stayed with 2G or 3G didn't move to 4G. 2G and 3G I think is pretty much dying out. So the 5G is really being compared not just to 4G content, but predominantly, or at least to a good extent to 2G and 3G. So I think the 17% growth in RF units is probably somewhat correct. And that's a Yole number, it's not my number. And that being said, I would foresee that as our capacity increases 300-millimeter as well as the new 200-millimeter platforms, which are now in early qualification stages, as they're qualified, we would continue to see a very strong growth, we have a 17% CAGR, I don't know, but I would expect a good double-digit growth next year in RF SOI.

Good, that's very helpful. Very interesting. In terms of the 2G, 3G comp. And then next question for me in terms of the data center so you expect that some of this excess inventory from the data center customers will start to be burned through over the next several months. And just so I understand you're expecting kind of shipment in 5G that market to rebound and kind of Q1 of next year and then kind of continue from there in Q2. By Q1, we should have the risk of excess inventory being cleared out and then the benefit of restocking plus the deployment of this 25 gig, maybe 100 gig for the optical transport layer, kind of with the double kind of positive impact potentially in Q1, Q2?

Exactly as you were saying – again, it's not, my expectation is really based off what our large customers are telling me about their inventory at this point. So they are saying that it's a three to five months inventory level that they have. If that's the case, then orders should be coming in within two to four months. And then for 5G it's we're running it very good cycle times, although it's many, many layers. But it's within quarter term on the shipping from start to ship. So if we're starting to increase the data center orders in the beginning of Q1 then we would start to see if it's really the very beginning of Q1, you start to see some increase at the end of Q1, but predominantly the Q1 ramp in stars would be shipping in Q2.

Okay. Very good.

That’s the first part. The second part was also a good statement that you had made. Certainly the case that if you have an infrastructure, 5G infrastructure part of 25 gigabit per second, it’s a smaller part than a four by 25 that you’re putting into a 100 gigabit per second data center application. So the infrastructure portion, it’s good to have and it’s a very nice business and we like it. But as far as the amount of wafers for the even equal amount of units certainly the four by 25 it’s larger. It’s more wafers. So you’re correct as the data center snaps back and the movement to a 100 gigabit per second, you have a double benefit on it.

Right. Okay. It, that’s helpful. And then last question from me, you had talked about industrial sensors, a little bit slow primarily because it’s China I would presume and, power discretes being a bit weak, both those areas you’re expecting to kind of bounce back. Is there a specific, and you specifically you mentioned industrial sensors growing double-digits throughout 2020, so some of that kind of positive commentary about a bounce back is that, based on dialogue from your customers where they have maybe have cleared out any inventory that they’ve overbuilt perhaps last year, are they starting to see some snap back in China industrial specifically? Any kind of commentary on the power discretes what, what’s giving you a little bit more confidence that that could potentially rebound? Thanks.

The second part of the question, first. I said I didn’t have a specific timing in mind as to when the power discretes will rebound that we’ve not been told. Customers are still just leery. And I honestly don’t fully understand truly why the power discrete market is down. I don’t, because the power management market is not.

Right. That puts a little contradiction there.

So I, and I don’t know, but it’s obvious that I guess, I mean if you look at the top five power discrete makers, none of them are talking about gangbuster sales. So, but it’s that that is the case. But now on the second part, for the industrial sensors, yes. I mean everything that I say really deals off of customer interaction and customer forecasts. So customers are now talking about coming back with certain orders. There’s obviously, and I said this in the script, we have a variety of new products that are well underway in qualification, but the old products that are in manufacturing, in volume manufacturing, now customers are forecasting an increase. So, if I look at our, you Q1, Q2, Q3, Q4 forecast in the industrial sensor market, it’s very strong. Now it, how much can I take that to the bank? Again, I’m not giving a target right now for 2020, I believe 2020 overall is a very, very strong year. So, but the customers as a rule that we’re selling into that market and we have – it’s a big portion of our image sensor business. They’re very optimistic of the numbers they are giving us.

Thank you.

The next question is from Joe Flynn of Craig-Hallum. Please go ahead.

Hi guys, congrats on the strong results.

Thank you.

I guess, my first question is, I guess on the incremental gross margin upside, I think around 80% you guys did in the third quarter, I wonder to what degree that would be like directly related to the 30 – 300-millimeter pickup and what kind of levels we should be expecting and going into the fourth quarter. I know you guys just mentioned that you are maintaining your longer-term target of 50% to 55%. But I was wondering if as RF SOI keeps ramping, you could possibly see any near term upside.

Yes, obviously 80% is great that we had the incremental margin this quarter, but we don’t assume that it will continue this pace and it’s attributed both to the 300-millimeter ramp and other, some exchanges. But from this baseline, I don’t believe you can assume additional 80% incremental 50% to 55% will be a reasonable conservative assumption.

Okay, great. And then just one question, are you guys mind walking us through what kind of revenue levels you’d be able to support on the current capacity, if, let’s say it was utilized close to 100% and if you mind breaking that out between the total revenue level across all the fabs and specifically the 300-millimeter.

So I’ll let Oren give a swag at it. But to start with, you have to understand our model 100% is not doable for us. There are fabs that or companies that will from time to time talk about 130% utilization. That’s because they report utilizations with a lot of takeaways in it. For us, 100% utilization is the absolute maximum that you can load in the factory on the photolithography. So you can’t run at a 100% utilization without having a cycle time that just expands and expands. Our target is somewhere between 85% to 88% so that’s the number, when I talked about an 80% utilization, that’s five points off from the maximum utilization that we can do. It’s not that 80% utilization, is 20 points off of the maximum. And, I again, I think it’s a very important point to make. So the utilization levels, if I, again as I talked about Fab 2 an 80% level is very close to max utilization. But there are times that we will run at 90% utilization, but if you were to run at 90% utilization in the way that we calculate utilization for long periods of time, your delivery cycle times increase. So, to maintain a good cycle time, the model that we have is again 85% to 88%. So that’s just the first part. Go Oren.

Yes. So I believe that that 88% utilization or 90%, we can reach maximum of 1.6 billion at the current capacity. I mean the current including the new, maybe 1.5, the 1.6 to 1.65.

All right, good. That’s helpful. That’s all for me.

Thank you.

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

Hi. Oren. I was wondering, given what’s going on in Japan, have you given some thought to what next year’s tax rate and minority interests might be?

So with Panasonic, we signed in March, 2019 a new contract, which is relevant for the coming three years until March, 2022 at least. And so I expect 2020 to be the same run rate and performance as you - as it is now, I mean, in Q2, Q3 2019, I don’t expect significant changes.

Right. And if you’re investing more, will that mean lower profits?

No, it should bring of course higher profits because the time that we will start to depreciate the new tools will be pretty much the time that we will enjoy the fruits of the investment. And this should be quickly showing fruits because like I think Russell mentioned with all the explanation about the figure that actually Uozu is a bottleneck constrained now. So every additional tool and wafer that we can manufacture is really spoken for by customers that’s really wait for that. So I believe it will – the profitability will improve from the revenue improvement that we’ll bring from those new tools. But I was thinking your question was about Panasonic demand, which we believe will be remained flat like this, like the current plan rates.

So keep the tax rate at 1%?

The overall tax rate for the company, well 1% is a very big achievement for us. I mean it’s not a high number compared to the fact that it should be theoretically an average or weighted average between the 7.5%, from the corporate paid in Israel and the rate between 21% and 32% of their affiliates. So, we choose to be by model, be a bigger than a 7.5, but since we have some credits and deductions and benefits from the specific locations of the factory, maybe you can assume a 3% or 4%. I mean, 2018 was 4%, 2019 is 1%, averaging between 1% to 4% is reasonable if you want to be conservative, you can put 4%. We will try to achieve 2% or 3%.

Okay, great. Thank you very much.

Thank you.

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

Yes. Just one clarification. You mentioned that you thought that your SiGe revenue would exceed its peak late in 2020 of the peak that it achieved late in 2018. Could you just remind us what the peak revenue was on a quarterly basis in late 2018?

Yes, we had focused on achieving a $200 million annualized run rate. So it was about the $50 million

Okay. And as far as CapEx goes for 2020 could you just remind us what the total CapEx number is going to be? I think you’re going to spend incremental money there in Japan to increase capacity. Could you just remind us what the total should be for 2020?

Yes, it should be exactly the model – the current model of $160 million to $170 million a year plus the our $100 million that we announced in July for the new CapEx in Japan like you mentioned. So the total is the summary of the two numbers.

And as far as the $100 million that you’re spending in Japan, could you help us understand the dollar content of capacity that you’ll get from that or help us understand the metrics about how much capacity increase you’re going to get for this $100 billion?

Yes, it’s a, we’re talking about a potential, I mean when fully – when spoken for should be above $70 million annual run rate of revenue. And the margin from that you can assume a big bit better than the average, which is 50% to 55%. So, you can do the calculation.

Okay. And - as far as 5G phones and infrastructure are really in a full ramp, could you take help us understand, there’s a pretty significant content increase of the types of products that you make in both handsets and in the base stations. Could you help? Do you have an idea about the percentage increase in content that you might be seeing in – in for 5G both in phones and infrastructure versus 4G?

I don’t know an exact number for the amount with an infrastructure of 5G versus 4G, I really couldn’t give an answer on that off the top of my head. On the mobile platform side and the front end module, it is what we had stated and this is in accordance with old it's about a 17% overall increase I guess. But as I stated, that is not just against 4G, that’s against 2G and 3G that the 5G will be replacing. If you were to look at the change between 5G and 4G there’s others that think that that’s specifically, some are about an 8% or 9% increase in RF content.

Okay, thanks.

This concludes the question and answer session. Mr. Ellwanger would you like to make a concluding statement?

Certainly. Thank you. So again, I thank everybody for their interest, for the very good questions. Q3, we really did post solid results. We were happy for that, but as stated in the PR, and not at the moment tangible in dollar signs, but believe that it will be over the next period of time. We made very substantial progress, really achieved multiple milestones across all of our business units. Had stated that we had major activities, contracts within display, major contracts within BSI, working on extremely exciting things and customer qualification, big end customer qualification with our SiPho platform, continual designs wins at 300-millimeter RF SOI. Continual design wins at 200-millimeter RF SOI, very advanced RF SOI and much progress within the power management sector, with the activities on the 65 nanometer BCD platform. So, things are really moving very, very strongly for the company. We have continued strong activities pursuing very accretive growth strategies and we have very strong outlook, very positive outlook for 2020 as we approach the year. And I’ll, talk in a minute about the conferences that we’ll be presenting at, but typically at the Needham conference in mid-January in New York, we’ll give our target for the next year. I think it will be a very positive one. So that being said, where I believe in an amazing position right now activity-based and also financial base with the opportunity and capability to do many things that are really being pursued and milestones being achieved with. In the very short term, in December 4th, we’ll be attending the Credit Suisse 23rd Annual Technology Conference in Arizona. Dr. Racanelli will be there. It's a whole series of one-on-one meetings and I believe it’s highly subscribed, but we’d love to see as many as you as we can. Needham Conference I mentioned, that’s January 14th, 15th in New York presentation and one-on-one meetings. Look forward to see whoever would like to meet with us there. And then still in the first quarter, we’ll be doing a large event in NASDAQ that we’ll be announcing shortly, and we look forward to see everyone at that event. So many good things happening and we look forward to updating you on them as they occur. And thank you very, very much.