高塔半導體 (TSEM) 2015 Q3 法說會逐字稿

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  • Operator

  • Ladies and gentlemen, thank you for standing by. Welcome to the TowerJazz third quarter and 2015 results conference call. (Operator Instructions) 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 November 11th, 2015. Joining us today are Mr. Russell Ellwanger, TowerJazz's CEO; and Mr. Oren Shirazi, CFO. I would now like to turn over the conference to Noit Levi, Vice President of Investor Relations and Corporate Communications. Ms. Levi, please go ahead.

  • Noit Levi - VP of IR and Corporate Communications

  • Thank you, and welcome to TowerJazz financial results conference call for the third quarter of 2015. 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, S-4, S-3, and 6-K filed with the Securities and Exchange Commission, as well as filing with the Israeli Securities Authority. They're 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.

  • Russell Ellwanger - CEO

  • Thank you Noit. Welcome to everybody and thank you very much for joining us today. Our third quarter results demonstrate strong execution of our business strategies, achieving record revenue of $244.2 million representing 23% organic, meaning the revenue without Panasonic, and 8% overall third quarter year-over-year growth. Gross margins rose having achieved a non-GAAP gross margin of 38% and we believe to be on track to achieve our announced non-GAAP fourth quarter gross margin target of 40%.

  • We achieved a record EBITDA of $63 million, up from $37 million or 70% improvement as compared to the third quarter of 2014. Third quarter GAAP net profit was $14 million versus a loss in the third quarter of 2014 and up from the $7.8 million of the previous quarter or 74% quarter-over-quarter increase. We have created a business and operational model which enables sustainable GAAP profitability going forward, and nominally continued GAAP profit growth.

  • Looking ahead, our fourth quarter mid-range guidance is $252 million representing a 21% organic and 7% overall fourth quarter year-over-year growth. Our fourth quarter guidance leads the industry in growth and as well breaks the $1 billion annualized run-rate target which will be a significant milestone for our Company.

  • Our industry-leading organic growth is driven by design wins which lead to new mastheads entering the factories which in turn drives volume revenue. We continue to increase in both measures being at record levels year-to-date versus the previous record for 2014, a total of over 400 design wins and over 17,000 maps entering the factories both up 13%.

  • Also in addition, we reached prepayment agreements with three key customers for 2016 and some beyond for capacity reservations totaling $45 million. Based upon the design win and masthead indicators, customer forecast, and prepayments towards capacity reservations, we are very confident to continued growth and performance in 2016 and beyond.

  • Looking at TPSCo, TowerJazz Panasonic semiconductor Company, the number of active customer projects during the third quarter has surpassed 80. Third-party revenue is forecasted to surpass $20 million cumulative by end of year with the third-party revenue forecasted to exceed $25 million a quarter during 2016.

  • Talking then to our specific business unit activities and starting with the RF high-precision analog, which is our largest business unit by revenue, our overall business will grow about 45% in 2015 relative to 2014 with certain segments within the RF business unit having doubled. We expect to see similar growth rate in 2016 based on current customer forecasts.

  • The growth is predominantly driven by RF SOI and silicon germanium technologies. RF SOI is used in smartphones for switches and tuners and is seeing explosive growth primarily as a result of content growth in smartphones. We announced this quarter the world's best RF SOI our Ron-Coff figure of merit from a collaborative development in our TPSCo Uozu factory. The sub-90femtosecond Ron-Coff performance will enable lower losses in smartphone switching, reduced power consumption, and improved reception.

  • We are working with initial customers on exploiting this advanced technology to create new breakthrough products.

  • Our silicon germanium market has traditionally been dominated by use within high-speed data networks which has seen solid and steady growth in support of the ever-increasing Internet data traffic. We are now seeing growth in a second area that of power amplifiers and low-noise amplifiers for smartphones. This quarter we began production of a new line of power amplifiers for mobile devices and are also ramping new low-noise amplifiers for smartphones. These applications are providing new growth opportunities for our silicon germanium technologies as we move into 2016.

  • Within our power management business unit, our technology continues to see strong growth primarily for our state-of-the-art 0.18 micron BCD process which is now being supported both in our Migdal HaEmek 8-inch and TPSCo Tonami factories. Last quarter we announced having completed the qualification of major power management flows in the TPSCo Tonami factory. This quarter we're happy to announce that we have begun production for several customers in the Tonami factory.

  • The impact for our fourth quarter revenue will be small, but will result in significant growth potential for us in 2016 enabling more capacity in our Migdal HaEmek facility whilst taking advantage of the capacity of our Tonami factory to satisfy growing demand for our customers for these power management wafers.

  • The CMOS image sensor market is large with silicon content of about $10 billion. Most of this is served by large integrated device makers or system markers that own their own factories and sell off-the-shelf camera modules. Of this $10 billion market, about $3 billion can potentially be served through foundry offerings. About two-thirds of this overall market serves the cellular camera market.

  • Outside of the cellular market are fast-growing markets driven by the industry general move into the Internet of Things. The market is not limited by the number of consumers who will buy a camera or a smartphone for that matter, but buy the number of things that will communicate still and video data.

  • One important such sub-market is automotive where the predictions are 8 to 10 cameras per car, external for advanced driver assistance systems such as lane departure and anti-collision warning, and internal for, for example, monitoring of children in the backseat and for gesture recognition.

  • Another such market is the security market where the trend today, especially in China, is a camera at each block for crime prevention. These cameras are gaining more and more sophistication which is in perfect alignment with our technology offerings.

  • The overall sensor market is growing at about 9% compounded annual growth. However, for TowerJazz by gaining market traction in areas not previously served by foundries as well as overall market share gain, our 2015 over 2014 growth will be about 35% for CMOS image sensor, and the 2016 growth is forecasted to increase further.

  • Also of importance, this business is among the highest margins in the Company. For CMOS image sensor, we continued shipping mass production wafers of 13 megapixel sensors based on our state-of-the-art 1.12 micron pixel 300 millimeter technology. In parallel, we have qualified with our leading customer a new design of 8 megapixel that is expected to ramp fast to mass production in the beginning of the next year.

  • The 8 megapixel sensor is based on the 1.12 micron pixel fitting 1/4 inch optics that allows much smaller form factor and lower module cost. We're moving very nicely in two other market segments in our Uozu 12-inch factory. The first is digital SLR and ILC, interchangeable lens cameras, known also as mirror-less cameras. Here we have shipped prototype sensors to two leading high-end camera vendors expecting to ramp into products in 2016.

  • And while the digital still camera market is declining due to the increasing performance of smartphone cameras, the digital SLR and ILC are steadily growing. The second segment is the security market where we have shipped this quarter two state-of-the-art sensors to a market leader in this area.

  • These sensors are expected also to move to mass production in the coming year. In Migdal HaEmek we see very high demand for our CMOS image sensor products in all areas, machine vision, high-end photography and cinematography, 3D gesture control and X-ray sensors. The demand has continuously grown from all of our customers and we expect Q4 2015 and all of 2016 to be very strong in CIS wafer demand.

  • We have lead customer partnerships where we have begun development of global shutter pixels for machine vision in TPSCo's Arai 8 inch 110 nanometer CIS fab with plans to transfer this technology to Migdal HaEmek to allow for dual sourcing and as well large sensor stitching helping to ensure our leadership in this very fast-growing market segment. Global shutter pixels are also required in the 3D gesture control market, hence we expect very high volume in the long term.

  • In the mixed signal CMOS business unit, we've met the aggressive goal to cross-qualify within this year some of our main customers from fab2 and Migdal HaEmek to TPSCo fab5. This will result in thousands of wafer shipments to key customers from Tonami factory in Q1 2016.

  • The customers will then benefit from the advantage of a dual source wafer supply. The Company will benefit from increased wafer output depending on quarter-to-quarter wafer mix demand. In parallel, we've continued to expand our process platform's availability and announced a 65 millimeter wave RF CMOS platform at the TPSCo 300 millimeter factory in Uozu, Japan.

  • This state-of-the-art process platform combines the benefits of digital logic SOCs with RF features and is targeted for a wide variety of potential application such as Wi-Fi, 802.11, wireless HDMI, YG, Bluetooth, GPS, digital TV tuners and automotive radar among others. This platform is automotive-qualified.

  • Looking at our top business unit where customers engage with us to transfer their manufacturing flows to within our factories for sole use by them, we are ramping to volume production multiple new technologies of Tier 1 customers both in TowerJazz factories and in TPSCo.

  • Existing platforms have also seen strong increase in production volume with many new designs and prototypes having shipped. Additionally, within this business unit and business model, we have completed a large customer transfer flow for RF SOI into our TPSCo Arai factory from a Tier 1 system company and fully matching prototypes have shipped to the customer expecting high ramp to begin in 2016.

  • In summary, the achievements of the past years and of the third quarter have realized two major milestones. Firstly a business size and model which yields sustainable GAAP profit. Secondly, the ability to guide a revenue level surpassing a $1 billion annualized run-rate. Our organic TowerJazz factories are running at very high utilization with cross-qualification activities progressing well at our TPSCo factories providing additional capacity and hence top and bottom line growth with minimal investment.

  • Lastly, our business groups remain active in projects with key customers driving multiple generation platform features mainly focused on the three drivers for the Internet of Things; firstly, seamless connectively; second, energy efficiency; and third sensors to enable smart systems.

  • With that, I would like to turn the call to our CFO, Mr. Oren Shirazi. Oren?

  • Oren Shirazi - CFO

  • Thank you Russell and thank you all for joining us today. Our third quarter financials resulted in all-time record figures on many fronts including record revenue, record EBITDA, record non-GAAP margins and record shareholders' equity. In addition, we again achieved an increased net profit on the bottom line.

  • On revenues, we recorded the highest quarterly revenue in our history. The year-over-year organic growth excluding Panasonic was 23%. This growth dropped to the bottom line while improving all our margins demonstrating significant non-GAAP margin enhancement with a $26 million incremental year-over-year gain in profit and a quarter over quarter continued increase.

  • We also reported a substantial GAAP margin increase and GAAP net profit of $14 million. Such growth was achieved while further building our strong balance sheet and reporting record shareholders' equity of $325 million.

  • As we already discussed previously, we continue to experience very large customer demand which exceeds our current manufacturing capabilities. Hence, we continue to execute on the actions we previously discussed in order to increase our effective capacity; customer products cross-qualifications between our worldwide manufacturing facilities mainly between our fab2, fab3 and Tonami factories; as well as capacity expansion including throughout reservation field for major customers. Some of those investments are already in progress and are partially recorded in our financials as CapEx investments funded by customer advances.

  • Now I will go into the detailed analysis of the P&L. As I mentioned, we achieved record revenue of $244 million for the quarter based on 23% organic growth which enabled a strong margin increase. Gross profit on a non-GAAP basis for the third quarter of 2015 was $94 million representing 38.3% gross margin, a substantial improvement in our gross profit from $68 million or 30% reported in the third quarter of 2014 and substantially higher than the 26.7% in the second quarter of 2014 which was the first quarter to include TPSCo.

  • Non-GAAP gross profit is also higher than the $87 million or 37.1% in the prior quarter demonstrating 120 basis points increase quarter over quarter. EBITDA for the quarter was at an all-time record of $63 million, 69% higher than the $37 million in the third quarter of 2014 and higher than the -- than $59 million in the prior quarter reflecting an annualized EBITDA run-rate exceeding $250 million.

  • Non-GAAP net profit for the quarter was $58 million or $0.74 per share, representing 24% net profit margin. This is an increase of 86% as compared to the $31 million or 14% net profit margin reported in the third quarter of 2014 and an increase as compared to $54 million net profit or 23% net margin in the previous prior quarter.

  • Now we'll discuss the results on a GAAP basis. GAAP gross profit for the third quarter of 2015 was $55 million, nearly 4 times the $15 million we had in the third quarter of 2014 and a 6% increase as compared to $52 million in the prior quarter. GAAP net profit for the quarter was $13.6 million.

  • This was achieved through the implementation of a financial model that we expect will enable us to achieve continued GAAP net profit going forward on a sustainable basis. This was versus a loss of $19 million in the third quarter of 2014 and a GAAP net profit of $8 million in the previous quarter.

  • GAAP basic earnings per share improved to $0.18 per share in the quarter as compared to a loss per share of $0.37 per share in the third quarter of 2014 and earnings per share of $0.10 per share in the prior quarter. For the nine months ended September 30, 2015, revenues were $706 million as compared to $593 million in the nine months ended September 30, 2014 representing 28% organic growth.

  • Net profit on a non-GAAP basis was $161 million for the first nine months of 2015, doubling over last year and GAAP loss was $52 million due to $85 million of non-cash other financing expenses which were recorded in the first quarter of 2015, mainly the result of very successful accelerated conversion of bond Series F which was $164 million converted in Q1.

  • GAAP net profit in accordance with IFRS was $15 million positive for the third quarter of 2015 and $14 million positive year-to-date with the major difference as compared to the US GAAP relates to the accounting for our debentures affecting non-cash financing expenses.

  • Moving into the balance sheet analysis, we significantly strengthened our balance sheet with increased shareholders' equity, increased cash balance, and reduced debt level. Shareholders' equity at the end of the quarter increased to an all-time record of $325 million as compared to $300 million previous quarter and $196 million at the end of December 2014.

  • Current ratio, which is the current assets divided by current liabilities, increased from 1.31 at the end of 2014 to 1.61 at the end of prior quarter and from there to 1.64 at the end of September this year.

  • Net debt as of September 30, 2015, was $134 million reflecting a net debt to EBITDA ratio of only 0.53X. This is compared to $340 million in debt -- net debt that we had as of September 30, 2014.

  • We ended the quarter with cash and cash equivalent of $155 million as compared to $143 million at the end of the prior quarter.

  • In terms of cash flow, during the quarter we generated $51 million positive cash from operations net after paying interest payment. CapEx investments in property and equipment were $40 million which is above the typical quarterly average level and is intended as previously discussed to increase the capacity and capabilities of the manufacturing facilities in order to support the strong and growing customer demand exceeding our current available capacity.

  • That summarizes my detailed financial summary and now I will turn the call back to Noit.

  • Noit Levi - VP of IR and Corporate Communications

  • Thank you Oren. Before we open up the call to the Q&A session, I would like now to add the general and legal statement to our results in regards to statements made and to be made during this call.

  • Please note that the third quarter of 2015 financial results have been prepared in accordance with US GAAP, and the financial tables in today's earnings release include financial information that may be considered non-GAAP financial measures under Regulation G and related reporting requirements as established by the Securities and Exchange Commission as they apply to our Company, namely, this release also presented financial data which is reconciled as indicated by the footnotes below the table on a non-GAAP basis after deducting, one, depreciation and amortization; two, compensation expenses in respect to option grants; and three, finance expenses net other than interest accrued such as non-GAAP financial expenses net includes only interest accrued during the reported period.

  • Non-GAAP financial measures should be evaluated in conjunction with and are not a substitute for GAAP financial measures. The tables also contain the comparable GAAP financial measures to the non-GAAP financial measures, as well as the 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 a 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 activity, per-share data or other income or cash flow statement data prepared in accordance with GAAP, and is not necessarily consistent with the non-GAAP data presented in previous filings.

  • I would now like to turn the call over to the operator. Operator?

  • Operator

  • Thank you. Ladies and gentlemen, at this time we will begin the question-and-answers session. (Operator Instructions) Cody Acree, Drexel Hamilton.

  • Cody Acree - Analyst

  • Congratulations on the progress. Russell, maybe you've got a lot of things going on in what sounds like positive things going on for 2016. Can you maybe rank order the growth expectations of your differing divisions, even some of the sub-divisions and give any quantification that you can as far as your -- what your growth is expected for those segments in 2016?

  • Russell Ellwanger - CEO

  • Certainly. Let me just add one clarifier to begin with. The Panasonic revenue that we ship, we do not break down into specific business units, as that would be talking much too much about the specific demand in markets of a single customer. So the circa $90 million to $105 million per quarter revenue from Panasonic is excluded in any of the percentages that I give you. The third-party growth of the TPSCo factories will be included in the numbers that I give you.

  • The RF SOI, we expect we have seen a doubling of the revenue there, we expect to continue to see a doubling of the revenue at least within the RF SOI. The silicon germanium will be nice double-digit revenue increase. CMOS image sensor I talked about previously, I think if we look at the revenue growth of the CMOS image sensor that should be somewhere in the 50% to 60% growth in the 2016 versus 2015.

  • Our TOPS business will be strong double-digit growth. Power management, if we continue to execute as we have been, will also see very strong growth on the multiple 10s of percent, and the aerospace and defense should also see a mid double-digit percent growth.

  • Cody Acree - Analyst

  • Thank you for that Russell. Maybe, Oren, as you look at the mix of revenue that's going into TPSCo, of course ex-Panasonic, can you just talk about the margin benefit as you are not just driving new customers into TPSCo, but you're transferring some product from your existing facilities, how that impacts or may benefit your overall margins?

  • Oren Shirazi - CFO

  • Yes, so basically it's for the Tonami and the ready fabs of TPSCo you should expect a 50% incremental gross profit, operating profit from each incremental revenue. For the Uozu fab, of course it's better margins because it's the most advanced fab and (inaudible) flows there, so for there you should expect margins at least 75% to 80% incremental margin from each incremental revenue.

  • Cody Acree - Analyst

  • And Russell, with your dedicated capacity or some of the reservation fees that you brought in, could you just talk a bit about how that came about, how those fees came about, how those discussions I guess developed? And is this capacity only to be used for those customers or do you have that available for others in the future? And then you talked in your press release about -- I think you said thus far. Are you expecting further reservation fees in the future?

  • Russell Ellwanger - CEO

  • So two different questions and I'll try my best to answer both. As far as the reservation fee, we had a certain baseline consumption that we continue to give, we continue to supply to whatever customer it is. As demand grows much higher than expectation, in the case of one customer demand really grew very, very high and we had asked for a reservation fee to help enable capacity growth in our TowerJazz organic factories.

  • In the case of the other customers, it really -- it might be used also for some organic growth, but it was really off of the fact of requesting a higher wafer demand than had been in the past during a period of time that capacity is constrained. And what is the big point of this is, it's the following; if you have a big increase in growth and you're saying that it will really take off in the third, fourth quarter of, let's say, 2016 to allow that growth for any given customer it means that you're stopping activities with a different customer.

  • If the forecast that the customer has is not met, it's very, very difficult in our business which is a strong analog business to replace many thousands of wafers per month by somebody else in the short term. So the reservation fee was really a way that the customer could guarantee that we would give them a large increase in incremental wafers and a way to protect us that if that demand isn't going to be used, at least some portion of the fixed will be covered because we can't on a dime fill that capacity with someone else if we plan to give it to somebody else three or four quarters from now.

  • Hopefully that's a clear answer for you, Cody. It's a good question.

  • Cody Acree - Analyst

  • Yes.

  • Russell Ellwanger - CEO

  • It's an accurate answer. Hopefully it's understandable.

  • Cody Acree - Analyst

  • Are you speaking future fee?

  • Russell Ellwanger - CEO

  • As far as the -- on the future, yes, we do.

  • Cody Acree - Analyst

  • Then lastly Russell, you -- I actually just saw a story in an Israeli paper where you were mentioning some potential opportunities in China. Could you just talk about any discussions you had or just what your thoughts are, particularly given China's recent penchant for internal semiconductor development?

  • Russell Ellwanger - CEO

  • So I didn't read the article that you're referring to. I'm probably familiar with the interview, but I'll basically say what I had said during that interview. There are certain countries, such as China, that -- and especially China to where there's many initiatives, government-driven initiatives to increase their own semiconductor capabilities.

  • Many municipalities are vying to grow factories, to grow capacities and to bring in certain technologies. What I had said was that there are opportunities that any of which are not at a stage to have any announcements on specifically, but certainly opportunities that we're aware of to where there are desires for factories to be built off of technologies that we really have a lot of IP in, and that one of the duties of China is that if there's a government decision to go a certain way, it can go very, very quickly because the government policy is really driven through the rest of the country without a lot of bureaucracy to have to go through, without bureaucrats in certain ministries that maybe have veto powers over the ministry direction. So that's really what I said.

  • Cody Acree - Analyst

  • Excellent. Thank you and congratulations guys.

  • Russell Ellwanger - CEO

  • Thank you very much, Cody.

  • Operator

  • Richard Shannon, Craig-Hallum.

  • Richard Shannon - Analyst

  • Congratulations from me as well and good results and guidance. Maybe a follow-up on the first question asked by Cody regarding -- kind of thinking about growth rates for next year. You gave us some -- in the most cases, some nice numbers to deal with here. Russell, any way that you can bake that down into an overall growth number you think is achievable or even kind of a stretch goal? I don't know how you want to think about it, is there any way you can break that down to an overall single number for us?

  • Russell Ellwanger - CEO

  • We might when we release Q4 give a target for 2016 revenue. I'm certainly not going to give one at this point.

  • Richard Shannon - Analyst

  • Okay, fair enough.

  • Russell Ellwanger - CEO

  • But (technical difficulty) businesses that we're sitting with, those are the amounts of growth that each of those businesses can be doing and now we think that they have. But no, I said that we have very strong demand for 2016 that we would foresee. Certainly nice growth from 2016 versus 2015, but when we release Q4, at that point we'll give our targets for 2016, not --

  • Richard Shannon - Analyst

  • Okay, well, you've given us a lot to chew on there, so we'll chew on that for the next quarter. A couple of other questions from me. Wondering if you can help us understand your CapEx, both -- expectations both for the current quarter and then into next year and if you can characterize it between more maintenance versus kind of growth CapEx, that'd be appreciated.

  • Oren Shirazi - CFO

  • Certainly. Yes, so basically we -- consistent with what we said in -- discussed in the past in this conference call even last time, we are pretty much flat at $27 million, $28 million, $29 million a quarter CapEx, which includes -- which most of that is sustained and a small part of that is for new tools to increase capacity. In addition to that what we announced previous time is that we dedicated between $15 million -- approximately $15 million for phase 2 and $15 million for phase 3.

  • So together $30 million for the coming two or three quarters altogether. Okay, so not every quarter. So a total of $30 million for a capacity increase in some of the areas where we, like Russell mentioned, face excess demand over the existing capacity mainly, 0.18 aluminum capacity both in phase 2 and phase 3.

  • In addition to that comes this new update about $45 million, which is actually -- part of that was already disclosed at the press release that we did about $30 million from one of the customers, and now we updated this number to $30 million to $45 million. But this is customer-funded, so it is very nicely increasing the capacity, but it's not from out-of-pocket money.

  • Richard Shannon - Analyst

  • Okay, perfect. That is helpful. Thank you for that Oren. Maybe back on the topic of capacity reservations, you mentioned having three customers, a total of $45 million in total reservations to date. Do you expect any other customers to be giving reservations here or is it these three customers, which I'm assuming are in the RF -- [RS] base?

  • Russell Ellwanger - CEO

  • There might be other customers that would get involved. We think there might be more money involved in general, additional reservations and it might be for more customers as well.

  • Richard Shannon - Analyst

  • Okay. And I think one or last two questions from me. Russell, I may have missed the specific wording here, but I think you mentioned relative to your TOPS business that you saw a transfer of RF SOI technology from a leading systems OEM. Curious if you can clarify what's going on there and specifically is this a new customer for this kind of technology or is it just share gains at a current one?

  • Russell Ellwanger - CEO

  • Certainly for TowerJazz family, for TowerJazz TPSCo, it's not necessarily a new customer, it's an absolute new activity. So there are other activities that we do with that customer, but this here is an activity that we had not done before to where the SOI is done internally by that customer.

  • Richard Shannon - Analyst

  • Okay. Great. One last question from me. Russell, I think I heard you say in your prepared remarks that your expectation is hitting your 40% gross margin on a non-GAAP basis for the fourth quarter then?

  • Russell Ellwanger - CEO

  • Yes sir.

  • Richard Shannon - Analyst

  • Okay. It would be reasonable to expect kind of a seasonably down first quarter in such that number might be down sequentially then?

  • Oren Shirazi - CFO

  • No, I don't -- I mean we didn't disclose anything about Q1, but you're correct that generally speaking there is a seasonality effect, but this time we have this increase of volumes mainly in TPSCo, which Russell referred in length about all these cross-qualification of power and other flows in TPSCo, so of course we should expect an increase from the TPSCo third party, but I don't believe we gave any comment about what will be the total.

  • Richard Shannon - Analyst

  • Okay, that's fair enough guys. I think that's all my questions. Thank you very much.

  • Operator

  • Marc Estigarribia, Chardan Capital Markets.

  • Marc Estigarribia - Analyst

  • Congratulations on the quarter. Just -- maybe this might be a question for Oren, but in terms of looking at the balance sheet, just getting a sense of the cash flow cycle, it seems that the payables are manageable and inventory levels are improving. Can you just comment on the rising receivables over the past year trends and your policy with regards to DSOs?

  • Oren Shirazi - CFO

  • Yes. So I believe the accounts receivable are going up in the same rates like the revenue. Generally speaking in the industry, at least in our business, payment terms are between 30 days to 45 days, average is around 40 days. So we have accounts receivable of $120 million against revenue run-rate of $244 million, so it's actually by coincidence exactly half quarter, so it's exactly 45 days. So we are really -- it's very good where the numbers stand now.

  • On the other hand with vendors the rate -- the payment is usually 90 days.

  • Marc Estigarribia - Analyst

  • Got it. Thank you. And in terms of depreciation, if we look at the new run-rate on the back of the new policy, last year obviously the run-rate was around $200 million a year, now we're looking at $150 million. Is that sort of the ballpark of where we should expect going forward on the depreciation?

  • Oren Shirazi - CFO

  • Yes. Yes. This should -- the expectation is that it will remain in this low -- new low level because on the one hand there will be some reduction -- cost reduction in that because past expensive investment finished the depreciation, but on the other hand we do invest some capacity now like I mentioned responding to the first question.

  • So I think it's very reasonable assumption to assume a flat $36 million, $37 million a quarter, so $150 million for the year like you mentioned.

  • Marc Estigarribia - Analyst

  • Right, thank you. And in terms of the potential dilution of securities over the next year, there is a little bit of difference between basic and diluted. Can you just give us a little color, I think the Series F bonds are set to convert by this period that we're in, but any color that you can provide within the remaining shares over the next 12 months would be helpful.

  • Oren Shirazi - CFO

  • Yes, of course. So actually we did write it in the press release below one of the tables, below the GAAP actually, the main P&L GAAP financial statement, profit and loss, below that there is an explanation about it, but I can summarize it and say that we have currently outstanding 79 million ordinary shares. We have 3 million shares that will result in from a conversion of bond Series F which is old news. I mean everybody knows about it, it's from five years ago, and this should be converted to equity because that has a $10.something conversion rate and so -- $10.06. So everybody assumes that it will be converted like you said of course. So 79 million plus 3 million is 82 million.

  • Apart from that there is no update. Actually this is also not an update, but apart from that it's -- there is nothing new. We just have the 6 million shares underlying Jazz bonds that we issued almost two years ago. We have 13 million in underlying ease-of-pay plan, employee stock option and director stock option including warrants which were issued a long time ago.

  • And the only other thing is 3 million left over of capital notes at the time. Many years ago we had like 27 million capital notes, it's only 3 million. So actually all these components have no update since a year ago, so no change.

  • Marc Estigarribia - Analyst

  • Thank you. And just one last question with regard to sort of a macro headwind here possibly with regards to rising interest rates in the US and further strengthening of the dollar as versus other countries actually easing, we're thinking about easing, what impacts are you sort of projecting or how you're handling the potential macro headwind of a stronger US dollar given the incremental growth by geography of Tower?

  • Oren Shirazi - CFO

  • Yes, so for us a stronger US dollar is good and the current trend is very good for us. For example, $100 million of our expenses are denominated in the Israeli shekel. So the effect that the dollar moved from ILS3.50 to now ILS3.90 is a very good contribution for us. Also against the Japanese yen, the third-party revenues are denominated in dollars of course because it's mainly US companies in the market and the ASP in the market is denominated in dollars. On the other hand, the expenses therefore, the Japanese employees and all the expenses are in Japanese yen. So strengthening of the dollar is a good trend for us now.

  • Marc Estigarribia - Analyst

  • Right. Thank you very much. Congrats on the quarter.

  • Russell Ellwanger - CEO

  • Thank you.

  • Operator

  • Lisa Thompson, Zacks Investment Research.

  • Lisa Thompson - Analyst

  • I would like you to just talk a little bit about how next year's quarters are going to fall out. I know that you said seasonally Q1 is down, but based on what you know now, kind of how is the revenue going to ramp during the year?

  • Russell Ellwanger - CEO

  • Again, an overall target or forecast for 2016, we'll give at our Q4 release. In looking into Q1 right now, we really have a very, very strong demand. I would not expect that we would see any seasonality in Q1 whatsoever. If we don't see seasonality in Q1 and I talk about growth in 2016, one would expect that we'll see growth quarter over quarter.

  • But I haven't -- or the Company has not really released will it be monotonic quarter-over-quarter growth or whatever, but we certainly see growth in 2016 versus 2015. And at this point, we'd really be surprised if Q1 was lower than Q4.

  • Lisa Thompson - Analyst

  • Great. And then does -- in the following quarters though, is it going to be steady growth or based on what you know does it accelerate in the second half?

  • Russell Ellwanger - CEO

  • We haven't announced that yet and we won't until we release Q4.

  • Lisa Thompson - Analyst

  • Okay. And then you'll kind of go though how you see the year going rolling out?

  • Russell Ellwanger - CEO

  • Usually we do, yes.

  • Lisa Thompson - Analyst

  • Okay. Great. All right. Thank you very much.

  • Russell Ellwanger - CEO

  • Thank you.

  • Operator

  • David Duley, Steelhead Securities.

  • David Duley - Analyst

  • Congratulations on excellent financial performance. A couple of questions from me. As far as the prepayments for capacity, the $45 million that you've received, how much was spent in the third quarter and how much would you anticipate of that would be spent in the fourth quarter to increase capacity?

  • Oren Shirazi - CFO

  • Spent. No. So we received and you can see it in the balance sheet an amount of approximately $15 million during the third quarter, but still we did not spend any of that because this is (inaudible), okay. So we got it and we spent in terms of we issued the POs, the purchase orders for the CapEx; but from cash point of view, no, we still did not pay anything as of September.

  • David Duley - Analyst

  • Okay. So as of September, you had $15 million of the $45 million in hand and now you have another incremental $30 million and so --

  • Oren Shirazi - CFO

  • Yes. Yes.

  • David Duley - Analyst

  • Is that the way to look at it?

  • Oren Shirazi - CFO

  • Yes.

  • David Duley - Analyst

  • Okay. And you haven't spent any of it yet. It's going to be deployed over the next couple of quarters?

  • Oren Shirazi - CFO

  • Yes.

  • Just one important note. Nothing from the $45 million is in revenue or P&L, okay. This is customer advances presented in the liability of the balance sheet did not affect anything in the P&L or in the revenue, right?

  • David Duley - Analyst

  • Right. Okay. And you mentioned some of your customers were starting to adopt your silicon germanium process for the power amplifiers. I was wondering is that a new trend from all of your customers or what is the rationale that they're doing that and perhaps -- maybe just talk about what the trends are there?

  • Russell Ellwanger - CEO

  • Is it a trend from all of our customers? No, I believe it's something that the most advanced customers are very interested in and for a variety of reasons. There's certainly a benefit if you can use a silicon germanium, which is other than the SiGe itself, it's a CMOS-based technology as far as what you can integrate on that wafer.

  • So if you have silicon germanium you can integrate control, you can integrate many other RF functions; that is very difficult to do on a gallium arsenide wafer. So one trend of this is really for the big benefit of more in-chip integration. It's very possible to have switch PA and control on the same basic design on providing what is the output capability and need of the power amplifier.

  • So that's I think probably the biggest drive is to be able to have higher integration levels. And then secondly fundamentally, a silicon germanium technology is less expensive than a gallium arsenide technology.

  • David Duley - Analyst

  • Okay. So I guess to summarize then your big RF customers who are definitely talking a lot about further integration on their conference calls of multiple different parts of the puzzle are going -- this is a longer term trend that you should see from your more advanced RF customers that do a lot of integration I guess is the way to say it.

  • Russell Ellwanger - CEO

  • Yes, we believe so.

  • David Duley - Analyst

  • Okay. And could you just remind us roughly for 2015 what -- you went through the segments of growth or the four or five buckets that you like to talk about your business. Could you just give us a rough idea of the percentage of total revenue that they would each account for in 2015 or any sort of guess or guidance there you could give us would be great.

  • Russell Ellwanger - CEO

  • Sure. So again this is excluding Panasonic, so we'll be dealing with somewhere circa $600 million. Off of that, you would have RF CMOS somewhere about 30%, silicon germanium somewhere about 15%, CMOS image sensor upwards to about 15%, TOPS somewhere 15% to 20%, power management shy of 10%, the CMOS mixed signal a bit shy of 10%, and the aerospace and defense sitting somewhere about 5%.

  • David Duley - Analyst

  • Okay. And then a final question from me is in the past you've talked about market share in the SOI business. Could you just give us an update of where you might think you'll be -- end up there at the end of 2015 and what -- help us understand the size of the market and how fast you think the market is going to grow?

  • Russell Ellwanger - CEO

  • It's a question I'm a little bit unprepared to answer as far as how much I think the market is going to grow. I think right now the size of the market is somewhere between $400 million and $500 million, $550 million, in that range. It certainly is growing and it's growing as a function of content.

  • There are still some RF switches that are done in gallium arsenide PHEMT, mainly legacy. I would believe probably somewhere about 15% to 25%, I really don't know the exact number, would still be older designs that are done in PHEMT. But I think there's very, very little new tape outs that have been, if any, in the past one to two years in anything but SOI. Where do I think our market is right now, probably we're sitting by run-rate, by shipment somewhere between 30% and 40% in Q4.

  • David Duley - Analyst

  • Thank you very much and again congratulations on the nice financial performance.

  • Russell Ellwanger - CEO

  • Thank you.

  • Operator

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

  • Russell Ellwanger - CEO

  • Certainly. Firstly just a calendar item; next week, November 18th, we'll be holding our Annual Investor Day at the Radisson Hotel in Newport Beach, California. We welcome anybody on the call or who would later listen to the transcript if you would be available to register and to attend. I think it will be an interesting day. It's on the website and would very much look forward to seeing all and everybody there.

  • Looking at the Company in a summary statement, we entered 2015 with very strong customer forecast and we set and announced aggressive targets of hitting a $1 billion annualized run-rate and moving non-GAAP gross margin to 40%, which was very substantial moves in both.

  • We're preparing now to enter 2016 with an even increased customer forecasted demand than when we came into 2015, not done yet, but certainly have guided and target still to hit those two major milestones of the 40% GAAP non-profit and the $1 billion run-rate.

  • In addition, however, the Company right now is a very, very different Company from its financial structure and financial base. The debt of the Company is extremely reasonable as Oren said at 0.53 debt to EBITDA ratio and we've entered into a new phase of the Company where the business size and business model enable sustainable GAAP profit.

  • So going into 2016, we're extremely excited because of the progress of the past years that will culminate I think into very, very nice achievements not only of this quarter, but of the end quarter and the full year. But to go into -- off of that base into 2016 I think is a very, very exciting place for us as a Company, for our customers, and for those of you investors and analysts that have been loyal to the Company and believed in the Company over the years.

  • So our statement is one of confidence and optimism as to what we've done will drive good activity and good results in the future and really a very strong statement of thanks to those of you who have worked with us over the years and believed in the Company. So thank you very, very much.

  • Operator

  • Thank you. This concludes the TowerJazz third-quarter 2015 results conference call. Thank you for your participation. You may go ahead and disconnect.