高塔半導體 (TSEM) 2015 Q4 法說會逐字稿

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  • Operator

  • Ladies and gentlemen, thank you for standing by.

  • Welcome to the TowerJazz fourth-quarter and full-year 2015 results conference call.

  • (Operator Instructions) As a reminder, this conference is being recorded February 24, 2016.

  • Joining us today are Mr. Russell Ellwanger, TowerJazz's CEO; and Mr. Oren Shirazi, CFO.

  • I would now like to turn the call over to Ms. Noit Levi, Vice President of Investor Relations and Corporate Communications.

  • Ms. Noit Levi, please begin.

  • Noit Levi - Director, IR and Corporate Communications

  • Thank you and welcome to TowerJazz financial results conference call for the fourth quarter and full year 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, F-3, and 6-K filed with the Securities and Exchange Commission as well as filings with the Israel 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.

  • Russell Ellwanger - CEO

  • Thank you, Noit.

  • Welcome to all of you and thank you for joining us today.

  • 2015 has been a significant year.

  • We recorded our highest annual and quarterly revenues, crossing the $1 billion annualized revenue run rate in the fourth quarter of 2015.

  • This was a lofty target for the Company when we set it several years back.

  • I congratulate all the TowerJazz employees for this notable achievement.

  • According to the McClean Report comparisons and our actual revenue, we reported leading year-over-year growth versus all other foundries at 16%.

  • Our 2015 results demonstrate continued execution in both our operational and business strategies, with record revenue, record EBITDA, strong margins increase, and continued strength across all of our financial ratios.

  • In the second quarter of 2015, we became GAAP net profit, with a business and operational model that is allowing us to achieve sustainable and growing net profits.

  • In addition, in the fourth quarter of 2015 we surpassed the 40% non-GAAP gross margin target that we announced a year ago with a 41% performance.

  • I stated a foundry-leading revenue growth of 16%.

  • The organic year-over-year growth realized in 2015, meaning non-Panasonic and non-Micron revenues, was 27%.

  • This type of organic growth is demonstrative of serving the right customers within growing markets, especially when considering consecutive years of similar organic growth.

  • Now I'd like to discuss the end markets that are served within each of our main business units, giving color to the revenue of each of the major groups as a percentage of the 2015 total Company revenue and which of the subgroupings within these groups are our strategic focus.

  • We are dividing our 2015 $961 million corporate revenues into four groups: RF, power management, and image sensors; All other products that do not fall into those three groups are grouped as mixed-signal others.

  • We will continue to present for annual summaries in this fashion.

  • Our RF group represented 31% or approximately $300 million of our 215 (sic - 2015) revenues versus about 24% or $200 million in 2014 -- hence, a 50% year-over-year revenue increase.

  • Within this group, we serve the following two major subgroupings: RF infrastructure and RF wireless.

  • First, RF infrastructure: our high-performance silicon germanium technology serves the wireline communication market.

  • The wireline communication market includes all aspects of the data network -- from backhaul, to communication within and between data centers and cloud computing centers, to the connection between wireless base stations and the wireline network, as well as high-speed wire connections to business and the home.

  • Most of the products we manufacture are used in high-speed fiber-optic connections within these end markets.

  • Second, RF wireless: RF SOI and silicon germanium technologies that serve these wireless communication markets include all mobile platforms, such as smart phones, tablets, wearables, and IoT devices.

  • This subgroup is a bit less than 20% of the corporate revenues.

  • Our technology is used in the front-end modules used to receive and transmit wireless signals in these devices.

  • The specific components we build within these modules are RF switches with our RF SOI technology as well as low-noise amplifiers and power amplifiers with our silicon germanium technology.

  • Thirdly, within the RF space, we serve many RF and millimeter wave applications outside the infrastructure and wireless markets, including applications such as television tuners; GPS receivers; automobile radar for collision avoidance; point-to-point microwave communications; as well as RF components used in anything from smart meters to garage door openers.

  • Looking at these three subgroups I've just mentioned, the highest percentage revenue and the highest growth subgroup is the wireless.

  • Due to the importance and growth of this group, it remains strategic, with multiple generation roadmaps and new innovative technologies.

  • In addition, we remain strategically focused on the silicon germanium-based infrastructure market which provides higher-end businesses.

  • Moving to the power management, this group represents 28% of our 2015 corporate revenues or $265 million approximately versus 27% or approximately $220 million in 2014 -- hence, 20% year-over-year growth in revenue.

  • Within this group, we mainly produce power ICs and discrete products.

  • For power ICs, our BCD power technology enables power management and power driver ICs.

  • Power management relates to power ICs that control the flow of voltage and current from a source, be it battery or an external power supply, to the various other ICs in electronic systems, such as processors, memories, and analog components.

  • Power drivers relate to the power ICs that provide the large voltage and currents that are required to drive external components such as displays, speakers, or motors.

  • The end market for these applications is very broad and includes computing, enterprise, consumer, mobile, and automotive markets.

  • Our discrete business is divided between a foundry offering -- for example, within our Tonami factory; and our TOPS business, where, as explained at previous calls, customer flows are transferred into our factories and in many instances are jointly developed within our factories.

  • These flows do not become a generic foundry offering but remain restricted to the specific customer.

  • Most of the TOPS business has a long-term sole-supplier status for the flows that we provide and/or take-or-pay agreements, providing stable revenues and long-term assurance.

  • The end markets are similar to the power ICs, with an additional strong presence in white goods.

  • In some instances the discrete and IC are packaged together for specific novel applications and are marketed as a module with enhanced performance and reduced cost.

  • Every electronic system contains power management units with ever-increasing requirements for green efficiency; hence we are strategically focused with customer-aligned, power-efficiency roadmaps (technical difficulty) focusing on RDS(on) figure of merit.

  • Our recently released advanced 0.18 micron power management process offers best-in-class RDS(on), which translates directly into efficiency improvement, lower power consumption, or reduction in the size of the circuit.

  • This platform targets more than 40% of today's power market, including computer, wireless, industrial, and automotive applications.

  • For the discrete business, we remain strategically focused on alignment for next-generation, higher functionality and higher integration co-developments, having generated partnerships with the industry leaders.

  • Our image sensor group represented 17% of our corporate revenues in 2015 or $166 million versus 15% or approximately $125 million in 2014, representing 33% year-over-year growth.

  • On the CIS front we focus on high-end sensors for the following markets: high-end photography for still, DSLR, and mirrorless cameras as well as high-end video, such as broadcasting and cinematography cameras; high-end industrial sensors, which is a broad and fast-growing market covering sensors for monitoring production lines, food, industry, and even traffic control; intra- and extra-oral dental x-ray large sensors as well as medical large x-ray panels made of very large one-die-per-wafer sensors; automotive sensors for rear and forward-looking auto driving-assistance cameras as well as side cameras, replacing conventional mirrors, and even internal cameras for gesture control; high-end security cameras, HD and full HD moving to super HD and even 4K -- a very fast-growing market; 3-D sensors for gesture recognition and 3-D rendering for use in 3-D printing; and high-end cellular front cameras.

  • The largest subgroups for us currently are the medical and industrial camera.

  • Our market share in the dental x-ray market is higher than 50%.

  • There is now strong opportunity for growth in the direct medical business with advanced CMOS tiling for some amorphous-silicon TFT panels.

  • In 2015 we began several strategic activities in the medical x-ray market.

  • One in particular was the CMOS leader.

  • Our strategic focuses are, firstly, next-generation platforms for industrial cameras, including global shutter capabilities for small pixel size, in which case an advanced platform is being developed as being developed presently with four customer partners; and secondly, using our 65-nanometer, 300-millimeter wafer size capability to create the most advanced and highly integrated security sensors.

  • Lastly, the mixed-signal others group represented 24% of the 2015 corporate revenues or approximately $230 million.

  • This is compared to 33% or approximately $280 million in 2014, including Micron; or approximately 27% or $220 million excluding Micron, which -- DRAM products is not a flow we provide or a market we serve and hence was not replaced upon contract fulfillment.

  • The products within this group include microcontrollers, ASICs, ID tags, logic standard cells, certain special CMOS embedded memories, and advanced sensors.

  • These products serve computing, industrial, consumer, and automotive end markets.

  • A second grouping is our aerospace and defense business in the US, providing ITAR and trusted access to our commercial technologies for military and space applications in our Newport Beach, California, facility.

  • In the mixed-signal others group, we are strategically focused on advanced sensors, including magnetic sensors and infrared bolometers.

  • To summarize our business units and markets that we serve, these markets and technologies focuses are well diversified between the different groups, end markets, and products.

  • Our single-largest end market, namely RF wireless communication, does not exceed 20% of our total revenue.

  • In addition, we had strong growth; and all of our chosen technology groups or predominantly those driving the three main trends in the industry -- namely, seamless connectivity; green everything; power efficiency in smart systems, sensors, and cameras.

  • These are the backbone of the Internet of Things.

  • Our customer demand remains strong with our present offering, while we work together producing platforms which will create next-generation products for future market needs.

  • The strong customer demand we experienced is reflected in the utilization levels.

  • We define utilization in the following way: 100% is the maximum possible wafer per month of the bottleneck tool, which is typically photolithography, being the most expensive tools in the fabrication area, at 100% availability.

  • However, photolithography capability is not always the capacity constraint for any given flow type or combination of flows.

  • Availability is calculated by deducting scheduled downtime and historical non-scheduled downtime.

  • Hence our 100% is the absolute maximum that a manufacturing can potentially produce.

  • Our operational model is to run at 85% utilization.

  • Utilization levels above 85% may have negative impacts on cycle time, especially if maintained over long periods.

  • The following were the utilization rates for the fourth quarter of 2015 against total available photolithography layers.

  • Fab1, Migdal Haemek, Israel: 6-inch factory, 65% utilization.

  • Fab2, Migdal Haemek, Israel: 8-inch factory, 91% utilization.

  • Fab3, Newport Beach, California: 8-inch factory, 91% utilization.

  • And the three TPSCo factories had similar utilizations with an average of about 41%.

  • Fab2 and fab3 are both running above the 85% operational model.

  • Therefore we are actively increasing the capacity at both of these factories.

  • As compared to the first half of 2015, the 2016 capacity of each of fab2 and fab3 is increased by 15%; and, as well, we will enable a higher mix of more advanced technologies, driving higher selling prices and also better operational efficiencies.

  • We have qualified our TPSCo fab5 with two high-volume BCD power platforms and additional high-volume specialty platforms to enable offloading from fab2.

  • The fab5 offload ramp is happening over this and the following quarters, and we'll drive continual utilization increase in fab5 while maximizing fab2 performance to match the high customer demand for its specialty flows.

  • All three TPSCo factories are running at measurably higher utilization rates than at the time of acquisition and will increase over this year, targeting to reach incremental third-party revenues of $25 million quarterly within this year.

  • It is notable and a verification of our analog model that fab1, having been built in 1984, is profitable, with truly immaterial new CapEx for capacity or capability having been added in the last decade, and several new and exciting projects being ramped, and additional projects being pursued.

  • The free cash flow breakeven for fab1 is approximately 50% utilization.

  • Finally, at the beginning of this month we announced the expansion of our worldwide manufacturing capabilities with the acquisition of an 8-inch wafer manufacturing plant in San Antonio, Texas, from Maxim.

  • We are thrilled to expand our existing long-term partnership with Maxim with this incremental business.

  • The 15-year supply agreement will allow us to manufacture products from Maxim's San Antonio facility in a quantity enabling a gradual ramp and, hence, increased availability capacity for additional foundry customers -- be they new and/or existing.

  • In addition, this approximate 28,000 wafer per month in the San Antonio factory will provide us with additional manufacturing flexibility and cost efficiencies.

  • This brings our overall capacity at TowerJazz and TPSCo to a level of over 2.3 million wafers per year according to the present mix of our production flows.

  • We are already well underway in qualification of three of our advanced RF flows and have begun transfer of one of the substantial TOPS business flow from fab2 into the San Antonio factory.

  • To summarize operations for 2016, our focuses are, firstly, timely capacity increase realization in fab2 and fab3, with the associated efficiencies.

  • Secondly, continued offloading to TPSCo and San Antonio factories -- balancing the loading in our worldwide factory and, hence, an optimal increase in wafer manufacturing.

  • And three, successful integration of the San Antonio fab into the TowerJazz family, with associated flow customer product qualifications to serve our increasing customer demand.

  • Looking now at our guidance, we expect revenues for the first quarter of 2016 to be $276 million with an upward or downward range of 5%, representing approximately 22% year-over-year revenue growth as compared with the first quarter of 2015, an 8% growth as compared with the fourth quarter of 2015.

  • To summarize, in 2015 we realized multiple goals, some having been established as visionary milestones, such as the target to cross the $1 billion annual run rate; and also some that were short-term tactical targets, such as to reach 40% non-GAAP gross margin, which we surpassed, and having achieved a business and operational model for sustainable and growing GAAP net profit.

  • We have also strategically enabled capacity in a model where the fixed cost is predominantly covered and the equipment in place, with the potential to achieve about $1.5 billion of annual revenues.

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

  • Oren?

  • Oren Shirazi - SVP of Finance and CFO

  • Thank you, Russell, and welcome, everyone.

  • Thank you for joining us today.

  • We are very proud of the outstanding results we released for the fourth quarter of 2015 and the full year.

  • We achieved record revenue of $254.6 million in the fourth quarter; record EBITDA of $75.5 million, representing $300 million a year EBITDA run rate; and an increased net profit of $22.1 million for the quarter, resulting in an EPS of $0.28 per share.

  • We are excited to start 2016 with an additional revenue growth guidance of $276 million a quarter, having midrange guidance reflect a 22% increase year-over-year.

  • We present as of year-end record cash and short-term deposits totaling $206 million, strong balance sheet financial ratios, approximately $200 million lower debt year-over-year, and a record shareholders' equity.

  • I will now provide our P&L results highlights for the fourth-quarter and full-year 2015 and then discuss our balance sheet and cash flows.

  • Revenues for the quarter were a record of $254.6 million as compared to $235 million in the fourth quarter of 2014.

  • And revenues for the year were also a record at $961 million, a 16% increase over the $828 million of 2014.

  • GAAP gross profit for the fourth quarter of 2015 was $65 million, reflecting 25% gross margin and representing an increase of 69% as compared to $38 million gross profit in the fourth quarter of 2014 with 16% gross margin, and an increase of 17% as compared to $55 million gross profit in the immediately preceding quarter, which had 23% gross margin.

  • GAAP operating profit was $34 million for the fourth quarter of 2015 with a 21% increase, as compared to $28 million in the fourth quarter of 2014 and a 43% increase, as compared to $24 million operating profit in the immediately preceding quarter.

  • GAAP net profit for the fourth quarter of 2015 was $22.1 million or $0.28 per share basic earnings per share, demonstrating increased sustainable GAAP net profit as compared to $14 million or $0.18 a share in the immediately preceding quarter, and as compared to $0.6 million or $0.01 basic earnings per share in the fourth quarter of 2014.

  • On a non-GAAP basis, as described in reconciling the tables included in today's release, we achieved the 40% non-GAAP gross margin and recorded 41% gross margin as compared to 38.3% in the third quarter of 2015 and as compared to 35.8% in the fourth quarter of 2014.

  • On a non-GAAP basis, net profit for the quarter was $70 million or $0.88 basic earnings per share as compared to $58 million or $0.74 per share in the immediately preceding quarter.

  • Diluted non-GAAP earnings per share for the fourth quarter of 2015 is $0.73 earnings per share as compared to $0.55 earnings per share for the fourth quarter of 2014 and as compared to $0.62 earnings per share in the third quarter of 2015.

  • EBITDA for the quarter was approximately $75.5 million, reflecting 30% EBITDA margin and 35% increase as compared to $56 million recorded in the fourth quarter of 2014, and reflecting 20% sequential increase as compared to $63 million EBITDA per quarter in the immediately preceding quarter.

  • For the year, GAAP gross profit was $205 million, more than 3 times the 2014 gross profit of $64 million.

  • Net profit on a non-GAAP basis for the full year of 2015 was $231 million or $3.11 basic earnings per share, which is 81% higher than the $128 million or $2.46 earnings per share in 2014.

  • Net loss for the year, which was $30 million or $0.40 per share, included $110 million of non-cash other financing expenses, mainly attributed to accretion and amortization, non-cash nonrecurring costs associated with bond Series F. For comparison, GAAP net profit in 2014 was $4 million, which included nonrecurring gain from TPSCo acquisition in the net amount of $166 million and the nonrecurring $56 million Nishiwaki fab restructuring and impairment costs.

  • Since many of the Company's investors and analysts are located in Israel and in Europe and are familiar with the use of IFRS, which is the International Financial Reporting Standard tools, we are voluntarily providing certain financial information also on an IFRS basis.

  • So net profit under IFRS was approximately $43 million for the year ended December 31, 2015; and basic earnings per share under IFRS was $0.58 per share.

  • The main difference between US GAAP and IFRS accounting principles as they relate to the Company's statement of operations for this reporting period is a different treatment of financial instruments affecting financial expenses, net.

  • For the comparable year ended December 31, 2014, net profit under IFRS was approximately $25 million; and basic earnings per share was $0.48 per share.

  • I will now go into the balance sheet analysis.

  • Shareholders' equity as of December 31, 2015, was $386 million, or nearly 2 times higher as compared to $196 million as of December 31, 2014.

  • This is an increase of 19% as compared to $325 million as of September 30, 2015.

  • Current ratio increased to 2.1x as compared to 1.3x as of December 31, 2014; and as compared to 1.6x as of September 30, 2015.

  • Net debt amounted to $105 million as of December 31, 2015, reflecting a net debt to EBITDA ratio of below 0.4x.

  • This is compared to net debt of $318 million as of December 31, 2014.

  • In regards to our cash flow report, cash and short-term deposits on December 31, 2015, amount to $206 million as compared to $187 million as of December 31, 2014.

  • The main cash activities during the year were comprised of the following: $208 million of cash positive generated from operations, excluding interest payments of $12 million; $14 million received from exercise of warrants and options; a receipt by TPSCo of a $71 million long-term loan from JA Mitsui Bank and Sumitomo Mitsui Trust Bank; investments of $166 million in fixed assets, net; $25 million Nishiwaki's employee termination payments in connection with its cessation of operations; and $70 million of debt principal payments we made to our banks and bondholders.

  • Cash and short-term deposits balance during the quarter increased from $155 million as of September 30, 2015, to $206 million as of year-end.

  • The main cash activities during the fourth quarter of 2015 were comprised of the following: $55 million positive cash generated from operations, excluding interest payment of $1.6 million; $4 million received from exercise of warrant and options; a receipt by TPSCo of the $71 million long-term loan from JA Mitsui Bank and Sumitomo Mitsui Trust Bank; investments of $58 million in fixed assets, net; $18 million of debt principal payment to banks and bondholders; and $1.6 million dividend payment to Panasonic by TPSCo.

  • Now, I wish to turn the call to Noit Levi.

  • Noit Levi - Director, IR and Corporate Communications

  • Thank you, Owen.

  • Before we will open up the call for 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 fourth-quarter and full-year 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 with 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 tables 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 that non-GAAP financial expenses net includes only interest accrued during the resultant periods.

  • Non-GAAP financial measures should be evaluated in conjunction with and are not substitutes 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 measure.

  • 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 entitled 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 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 consistent with the non-GAAP data presented in previous filings.

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

  • Operator?

  • Operator

  • (Operator Instructions) Cody Acree, Drexel Hamilton.

  • Cody Acree - Analyst

  • Congrats on the results and on the progress.

  • Maybe a few questions for Oren.

  • Oren, obviously, congratulations on the gross margin progression.

  • Can you just talk about how you get to 41% this quarter?

  • That must have been an extremely high incremental margin.

  • Can you just talk about the components of that?

  • And then what are your expectations for incremental margins going forward in your trends through 2016?

  • Oren Shirazi - SVP of Finance and CFO

  • Yes, thank you, Cody.

  • Yes, indeed it was a very aggressive, challenging target we put there a year ago to achieve the 40%, and we achieved 41%.

  • As one can see from the analysis in the tables from Q3 2015 that we had 38.3%, we grew the revenues by $10.5 million.

  • And pretty much this $10 million contributed to the bottom line, and this is how it was done.

  • The explanation of that is that from the one hand, we did some cost reduction measures and savings.

  • And on the other hand, the mix of the revenues was more in favor of more high-margin products that we sold.

  • If you go back to our basic model, usually we assume that any incremental dollar revenue brings about a 60%, or 50% to 60% to the bottom line, to the gross profit.

  • So it means that the additional $10 million that I spoke about should have brought additional $6 million -- $5 million or $6 million to the gross profit.

  • Actually, it brought $10 million, which is $4 million better, which -- we have achieved this $4 million -- this extra $4 million out of the $104 million that we present -- it was achieved partially by savings and partially by the added -- by the improved mix of higher-margin business.

  • Cody Acree - Analyst

  • Congrats on that.

  • Great progress.

  • On the Series F debenture conversion, can you just talk about where that stands?

  • What's left?

  • What was done during the quarter?

  • Oren Shirazi - SVP of Finance and CFO

  • Yes, this is actually 99% done.

  • We issued many years ago, it was six years ago, these bonds.

  • The total outstanding amount or value amount was $230 million.

  • This amount was outstanding amount until June 2014.

  • From the third quarter of 2014, those bonds, which also traded in Tel Aviv Stock Exchange -- because they were in the money were converted into shares.

  • And the entire amount or from the entire amount of $230 million, $228 million were converted into shares.

  • It happened in the second half of 2014 and in 2015, mainly in the first quarter of 2015.

  • And as of December 2015 we were left with $2 million.

  • Those $2 million are due for payment 50% December 2015 and 50% December 2016.

  • So the December 2015 part was paid.

  • And whatever is left is only $1 million of those bonds which are due for payment in December 2016.

  • So it's, of course, a very small amount which is left.

  • And that's the end of that.

  • Cody Acree - Analyst

  • And then on to -- on TPSCo and that Japanese loan, can you talk about why you took that $71 million Japanese loan?

  • And then the can you just also talk about the relationship between your dividend paid to TPSCo and the non-controlling interest payment -- what is the relationship between those two?

  • Oren Shirazi - SVP of Finance and CFO

  • Okay.

  • The TPSCo loan is basically a loan to be used only for TPSCo purposes, which is in this case to pay down upon accounts of the previous loan.

  • If you remember, TPSCo -- the origin got a $70 million -- approximately $70 million loan.

  • This loan is starting to be repaid in Q1 2016, meaning right now.

  • It's about $20 million a year.

  • So we got the new $70 million.

  • And these amounts will be just used in order to pay down for the all the loan according to its original schedule.

  • And at the end of the day, we don't want to increase the debt or the cash of TPSCo, so it's just a full replacement of the old loan.

  • In regards to the other question about dividend: good, it's the first time we have this.

  • Under our shareholders agreement with Panasonic and also as permitted by the bank contract in Japan that gave the loan, the policy is allocate up to 50% of the net profit of TPSCo to the shareholders; and, of course, we have 51% share and Panasonic has 49% share.

  • So as of -- and this net profit, it's a good question that you asked; this net profit is measured according to JP GAAP.

  • This is according to the agreement.

  • So basically for 2015, it came out to be that -- sorry, for 2014 it came out to be that the net profit under JP GAAP, Japanese GAAP for the TPSCo was $6 million, which means that according to shareholders' agreement, up to $3 million -- a small amount, but still -- up to $3 million should be -- can be, if the shareholders want, distributed between Tower and Panasonic.

  • And the shareholders voted for it.

  • So we distributed the $3 million: $1.6 million to Panasonic, $1.6 million-something to Tower, $1.7 million, to Tower Israel.

  • And also for the future, for the future, this term exists.

  • So any net profit from TPSCo can be distributed up to 50% of the net profit as dividends.

  • The amount, as you've seen in the consolidated statement, is -- of course, under GAAP -- is only the amount that was paid out to Panasonic, because the amount that was paid into Tower Israel is, of course, intercompany -- that is not counted, okay?

  • It's not.

  • Okay?

  • (multiple speakers)

  • Cody Acree - Analyst

  • And is that just once a year, Oren?

  • Oren Shirazi - SVP of Finance and CFO

  • Yes?

  • Cody Acree - Analyst

  • Is that just a once-a-year calculation?

  • Oren Shirazi - SVP of Finance and CFO

  • Yes, every year in the end of the year.

  • Also for 2015, after the year will end, which is pretty much -- I mean, the year ended, but after we have the final approved financial statements stand-alone of TPSCo, we see what is the net profit of TPSCo under the Japanese GAAP.

  • And up to 50% of that can be distributed as dividend to Tower and Panasonic.

  • And Tower and Panasonic sit in a meeting -- Russell is the Chairman of the Board of TPSCo, and he is a Japanese partner -- and decide if they want to allocate any amount up to 50%.

  • Cody Acree - Analyst

  • And then, lastly, Oren -- or excuse me, Russell, for the San Antonio factory, can you just talk about what your expectations are for the ramp?

  • It sounds like qualification is going well.

  • What about third-party revenue and the ramp expectations for the second half of the year and into 2017?

  • Russell Ellwanger - CEO

  • So I stated -- and we had already begun prior to the actual completion of the contract to transfer flows into the San Antonio factory.

  • The beauty of this transaction as far as getting started early was we were buying a facility that belonged to Maxim, not interfering with the Maxim business, per se, through a merger.

  • And hence there was no cold period of activity, so to speak.

  • We were able to, with Maxim's approval, begin transfers earlier than the completion of the of the contract.

  • So back in the fourth quarter of 2015, we began two RF SOI flows and an RF control flow, which -- the first results came out very, very good.

  • We are completing the qualification of these flows, and we'll be approaching customers probably in Q2 to start getting qualified.

  • By an aggressive target, we would expect to see some small millions of revenue in Q4 of incremental revenue on top of our contract with Maxim.

  • As had stated, the agreement with Maxim is really for most intents and purposes a growth in continuation of the very, very strong business relationship that we have.

  • So this 15-year contract with them, we look at as a -- not something that in and of itself is a momentous digital activity, but a derivative of the strong activity we have within a supplier/customer partnership.

  • Obviously, there's some degree of capacity that's available right now for third-party revenue.

  • And we'll be taking advantage of that as quickly as we can.

  • We have not established any targets or -- that's not true.

  • We have not announced any targets for 2017 as far as the revenues that we would be seeing for third-party or not.

  • But fundamentally we don't look at the San Antonio factory as a function of a third-party revenue or anything in the sort.

  • This is a fully-owned factory of TowerJazz, to where all revenues coming out of it we look at as an organic revenue.

  • Although the fact of building up additional customers to Maxim is just a normal foundry model.

  • Does that make sense, the answer?

  • Cody Acree - Analyst

  • It does.

  • Thank you very much, Russell.

  • And congratulations on the progress.

  • Russell Ellwanger - CEO

  • Thank you very much.

  • Thank you for the questions.

  • Operator

  • Shawn Simmons, Oppenheimer.

  • Shawn Simmons - Analyst

  • I'd like to add my congratulations as well.

  • I guess, Russell, first question is for you: in terms of the guidance, obviously, there's going to be about two months of contribution from Maxim.

  • I guess how much is coming from Maxim?

  • And kind of -- my math sort of suggests that your core business should still grow sequentially in sort of a seasonally weaker quarter.

  • So I guess, out of your four business groups, where are you seeing that growth sequentially into the March quarter?

  • Russell Ellwanger - CEO

  • I gave the specific breakdowns of the year-over-year growth for the end markets that we served.

  • There's no major difference of what we see in Q1 versus what we saw in 2015 as far as the areas of growth.

  • We certainly have growth within RF.

  • We have very strong demand within CMOS image sensor.

  • We have very strong demand within power management.

  • The first, second, third, fourth quarter, the predominant third-party revenue that we'll be getting out of the TPSCo factories deals a lot with the offloading of power management activities -- the BCD flows that I mentioned that we had qualified at TPSCo -- the offloading of those activities, which is very, very easily substituted in Migdal Haemek with other flows that we want to keep within Migdal Haemek.

  • So the incremental revenue -- really, it sits very strongly within the RF, within the image sensor demand, and within the power management demand as the power management that customers continue to qualify and grow in the Tonami factory.

  • Shawn Simmons - Analyst

  • Okay, great.

  • And then I guess just to Oren, real quick on CapEx.

  • I think it kind of came in a little bit higher than I would have expected this quarter.

  • Are we starting to see that CapEx number start to come down to a more normalized level this quarter?

  • Or should we expect some CapEx associated with the fab2 and fab3 buildouts?

  • Any help there as we progress through 2016?

  • Oren Shirazi - SVP of Finance and CFO

  • Yes.

  • So we have stated in the past that out of the CapEx -- I'm talking about in the total CapEx for 2015 plus 2016 -- we have, in addition to the baseline of $120 million a year, $45 million funded by customers' prepayment.

  • So the cash in from the customer prepayment comes into the cash from operations, as this is why -- one of the reasons that you see very nice numbers under cash from operations.

  • And the cash outspending is for buying CapEx machines; hence, this is under CapEx.

  • So this is one of the reasons that is -- have to consider in the CapEx.

  • So you have the $120 million; you have the $45 baseline.

  • In other words, the $45 million total amount of -- from the prepayments.

  • And in addition to that, we said $15 million to $20 million to each of fab2 and fab3.

  • So $45 million plus $15 million or $20 million to each of the fabs -- it's about $80 million in addition to the baseline of $120 million.

  • Now this extra $80 million are spread more or less from Q3 2015 until Q2 2016.

  • So, indeed, one shall expect that Q3 2015, Q4 2015, Q1 2016, and Q2 2016 reflects additional CapEx, totaling $80 million.

  • So it is averaging $20 million a quarter.

  • If you look at Q3 2015, it was one amount.

  • It was only $9 million on top of the $30 million run rate.

  • All right?

  • It was $39 million.

  • So only $9 million was spent in Q3 2015.

  • And, indeed, like you mentioned, Q4 2015 was maybe $28 million from that, because we have $58 million as compared to $30 million.

  • So $28 million plus $9 million -- we have $37 million, which means that there is an additional $43 million to pay during H1 2016 on top of the existing baseline level of $30 million a quarter.

  • And it will be spread pretty much linearly between Q1 and Q2 2016.

  • Shawn Simmons - Analyst

  • Okay, great.

  • And then I guess just -- I have a follow-up on gross margins.

  • In terms of taking on Maxim, obviously that business is going to come in at a substantially lower margin.

  • Where should we think about gross margins in Q1 on a non-GAAP basis, and how should that progress through the year?

  • And then is there any step-up associated with D&A with the acquisition of Maxim?

  • Oren Shirazi - SVP of Finance and CFO

  • No, first, the second question, the answer is no.

  • There should not be a step function -- ah, you asked about D&A.

  • I was thinking you asked about --.

  • Shawn Simmons - Analyst

  • Yes, correct, the depreciation and amortization, yes.

  • Oren Shirazi - SVP of Finance and CFO

  • Okay, so let's start -- from the Maxim it acquisition, we -- first, there, what I said no is that I mean there should not be any step-up of the R&D and the M&S G&A, okay?

  • Maxim financials are consolidated, so there should be an increase in revenue and an increase in COGS, but not an increase in R&D and marketing -- M&S G&A.

  • The reason is that we are doing with our existing resources already R&D, marketing, sales, administrative; so it's really effective, this acquisition -- efficient.

  • On depreciation, yes, we will do the same thing under GAAP which is required to do with any acquisition.

  • We will need in Q1 to give -- to do an appraisal by a third-party expert of the fair value of the assets of San Antonio.

  • And whatever the fair market value -- the fair value will be determined by the third-party independent appraisal.

  • We will accept it, and we will have to depreciate it over the year.

  • I don't think it will be a material amount of depreciation, because whatever -- I don't want to say the amount, because I have no idea what will be the amount, because we didn't start the work; we just acquired the fab.

  • It shouldn't be a material amount of additional depreciation.

  • In regards to your margin question, so really we don't feel comfortable because of our partner for Maxim to disclose the exact margin -- incremental margin from this transaction, because whatever good margins it gives to us, it means that they have this -- this is what they are paying, right, to cover, maybe, costs.

  • Of course, it will be positive margin.

  • And really we don't feel comfortable to say it, because of the request of our partner.

  • Shawn Simmons - Analyst

  • Okay, great.

  • Thanks, guys.

  • Operator

  • Richard Shannon, Craig-Hallum.

  • Richard Shannon - Analyst

  • Thank you for taking my questions.

  • I'll echo congratulations on a very good finish to last year.

  • Maybe I will follow up on this last question, kind of taking the logical next step here in talking about the gross margins as you add in Maxim.

  • Can you tell us whether you expect the contribution of Maxim to be neutral, or accretive, or dilutive to EPS?

  • And if it's dilutive, when does it get to a breakeven level or a neutral level?

  • Oren Shirazi - SVP of Finance and CFO

  • Of course, Richard, this is accretive to the EPS.

  • This is incremental net profit in dollar, incremental gross profit in dollar, incremental EBITDA, and incremental EPS, which is more than the amount of the shares that we [issued to them].

  • But it goes back to the answer to Shawn earlier, because we cannot say the exact number, because this will reveal the contract terms and prices.

  • And we promised Maxim not to do so.

  • Richard Shannon - Analyst

  • Okay, fair enough; I certainly understand the confidentiality reasons for that.

  • Maybe I can ask you a couple questions about looking out through the year, and -- as we see both the organic business progress as well as whatever may happen to Maxim here.

  • Care to give any quantitative or perhaps even qualitative thoughts on where your gross margins can go this year?

  • And also what kind of revenue growth do you think is a good bogey to think about, either on organic or including Maxim?

  • Those would be great to hear your thoughts there, Russell, please.

  • Russell Ellwanger - CEO

  • So, we have not said previously, other than stating that we would break the $1 billion run rate last year and stating in 2010 that we would break $500 million.

  • We've never given annual targets.

  • That was just for those two big milestones.

  • We haven't set a target for this year.

  • It's possible that we will still announce a target when we release Q1, but we haven't yet.

  • If you just look at the actual Q4 results, look at the Q1 guidance, certainly there will be growth over the 2015 revenue level.

  • If you look at the fact of hitting a $25 million quarterly run rate target at TPSCo sometime in the year, then you could say also that would be a revenue increase that you don't see right now within the Q1 guidance.

  • But we haven't set the exact target, Richard -- or we haven't announced an exact target.

  • Richard Shannon - Analyst

  • Okay, really look forward to it whenever you can give that to us.

  • We know you gave us an aggressive target last year, and you exceeded it.

  • So we will look forward to hearing that when you can.

  • Russell, to follow up on one of your last comments regarding TPSCo and hitting that $25 million quarter run rate at some point this year: to be clear, that does not include any transfers from other fabs within your system.

  • That's purely third-party new customers coming into TPSCo?

  • Is that correct?

  • Russell Ellwanger - CEO

  • No, not at all.

  • That third-party increase -- there was two reasons for acquiring the majority ownership of the Panasonic semiconductor factories.

  • One was capabilities that we wanted to have that would allow us to bring on new customers that -- we didn't have those capabilities within our organic factories, namely the 300-millimeter 65-nanometer.

  • So that certainly will be part of the growth of this year.

  • And the other was the flat-out capacity.

  • Capacity for us really deals with bringing up flows that we sell as foundry flows.

  • So every flow that was in Panasonic, there's a few that we have worked on to make a previous Panasonic flow, a foundry-compatible flow; and then there's other flows that we have transferred in there for our own desire to continue to grow, for example, the power management BCD.

  • The incremental growth in the TPSCo is both new customers for new activities that we didn't previously have capability to do, as well as growth with existing customers -- maybe new tape-outs, maybe new products, but on flows that we're transferring into TPSCo.

  • There are as well growth this year from customers that we maybe have elsewhere in the Company, but within the TOPS business to where we have brought up specific customer flows within TPSCo.

  • So that's a combination of all three.

  • Richard Shannon - Analyst

  • Okay, I appreciate the clarity on that one.

  • I guess my last question, just very quickly, for Oren on the cash flow from operations: can you give us a quick breakdown of those components, specifically the prepayment contribution and working capital changes on there, please?

  • Oren Shirazi - SVP of Finance and CFO

  • Yes, working capital is not affecting us.

  • At times like that in the last three years, actually, that we are in a ramp -- in a regular company, maybe indeed working capital has a negative impact, because it first pressures the material, and then only the chips, the wafer, and then collect the money.

  • And so there is a time gap.

  • But in our case, the payment terms from customers are better than the payment terms we get -- not better; I mean shorter than the good payment terms we get from our vendors, which help us in times of ramp-up to the effect there is no impact.

  • In terms of -- so in terms of that, there is nothing in the, let's say, $207 million positive cash flow from operations this year; excluding interest, there is no component of working capital.

  • There is, indeed, if you indicate to that -- into that a component of customer prepayment.

  • Okay, so those customer prepayments that are used for CapEx, there is an amount of approximately $30 million from the $45 million that we announced, $30 million from that that we received already in cash during 2015.

  • So this is part of the $207 million.

  • So the other part of $177 million is really regular cash from operations, nothing special.

  • Richard Shannon - Analyst

  • Okay, Oren, I apologize; I asked an imprecise question; I was actually asking specifically about the fourth quarter.

  • I guess very specific to -- just in the fourth quarter.

  • So you're saying there weren't any discrete payments built into that basically $55 million number for the fourth quarter, then?

  • Oren Shirazi - SVP of Finance and CFO

  • Yes.

  • So from the $30 million, that during the year about $15 million were included in Q4.

  • So without the $15 million it's $40 million.

  • Richard Shannon - Analyst

  • Got it.

  • Okay, that's enough questions from me, guys.

  • I appreciate the time.

  • Thank you very much.

  • Operator

  • Marc Estigarribia, Chardan Capital Markets.

  • Marc Estigarribia - Analyst

  • Thank you and congrats on the results.

  • I just wanted a clarification, Russell.

  • I think you mentioned on your report that there was 27% organic growth, but I read in the release it's 21%.

  • I just need clarification if it's 21% or 27%?

  • Russell Ellwanger - CEO

  • 27% was year over year; 21% was quarter over quarter.

  • Marc Estigarribia - Analyst

  • Okay, great.

  • Thank you.

  • So I guess, looking at that number, I think there was a question already asked with regards to looking at the next quarter and sort of incremental growth going forward.

  • Looking at the core business of what's going on with Maxim already, is it safe to say that we are still looking at that contribution from Maxim of around $20 million per quarter, as sort of an underlying growth for Maxim's contribution?

  • Is that around the right number for that?

  • If we look at the guidance for first quarter and pull that out to get organic?

  • Russell Ellwanger - CEO

  • To begin with, we have never stated a number for the contribution for Maxim, and we have an agreement that we shall not.

  • However, whatever the number would be, it would only be two-thirds of that number, because the deal culminated on February 2. But we've never given a number of what that would be, and we will not be putting that number from any of our revenues.

  • As I stated, the Maxim San Antonio facility is a fully-owned facility to where we have some revenue in it of Maxim as a customer, and we'll be building up revenues of other customers in that same factory.

  • But the specific Maxim contract we have not discussed.

  • Marc Estigarribia - Analyst

  • Okay, that's fair.

  • And there was also the question asked about the gross margins going forward, and --.

  • Russell Ellwanger - CEO

  • I just want to clarify something, because I hope that I didn't mis-word.

  • The 21% is Q4 year over year, right?

  • So it's quarter over quarter, but it's Q4 quarter versus Q4 quarter.

  • And the $27 million is full-year year over year.

  • Marc Estigarribia - Analyst

  • Oh, I see.

  • Okay, great.

  • So it is -- okay, the fourth quarter was 21%, and the full year was 27%.

  • Okay.

  • Russell Ellwanger - CEO

  • Yes.

  • Marc Estigarribia - Analyst

  • Thank you.

  • The gross margins going forward -- the first -- now, I think there was a question already on the Maxim ramp-up.

  • And I know there is incremental growth here on every line item because of San Antonio.

  • But should we expect sort of a ramp-up in the margins going forward from second half being better than the first half?

  • Is that sort of the way we should model it out?

  • Oren Shirazi - SVP of Finance and CFO

  • Yes.

  • Yes, of course, this is assuming that you assume increased revenue quarter over quarter, which -- we didn't give this exact guidance.

  • But of course, if there is increased revenue quarter over quarter continuous, it will be very nicely reflected in much improved net margin -- gross margin.

  • Marc Estigarribia - Analyst

  • Great, thanks.

  • And congrats on hitting the guidance on fourth quarter, $250 million, and the guidance on the 40% in the fourth quarter.

  • And if you could just comment, because I know we've spoken about this in the past, but just wanting clarification.

  • On that long-term gross margin number of 50% by 2017, if there is an update there on that guidance, I know you made a couple of comments on that.

  • But if you can just clarify, going forward, what we should expect in terms of that long-term gross margin guidance?

  • And also on the OpEx for 2016 -- if that should remain flat year over year.

  • Thank you.

  • Russell Ellwanger - CEO

  • Sure.

  • Firstly, just to be very specific on language: the $250 million actually wasn't the guidance.

  • The guidance was higher than $250 million, and we gave that guidance when we released Q4.

  • We had set a target to break $1 billion at the beginning of the year, but that was a target.

  • The 40% we never guided; it was a target that we gave a year ago tonight.

  • And at the time that we gave that target, we set another target to work towards the 50% -- achieve 50% in 2017.

  • So I just wanted to state -- in my mind, there's a difference between a guidance and a target.

  • But I think we're pretty good about working towards our targets.

  • The 50% is to a big extent -- I mean the incremental margin increase is to a very big extent the third-party revenue build-up in the TPSCo factories and some of the offloading that we are doing.

  • I mentioned in the script that we have, against the first half of 2015, somewhere about 15% more capacity in Newport Beach and more capacity in Migdal Haemek.

  • So the incremental revenues coming out of those two factories -- providing that it's fulfilled in demand -- and then the growth of the third-party business will grow good incremental margins.

  • I had stated the average utilization in the three TPSCo factories being slightly above 40%.

  • That gives a lot of free capacity there for growth, and that growth is a big factor of what will drive up the margins over the next years.

  • Achieving the $25 million quarterly target of third-party revenue is a step towards that this year.

  • And we had established a higher target in 2017, which was to achieve an annualized $150 million to $200 million in the latter part of 2017.

  • So all of that is incremental to it.

  • That's, I think, a fairly accurate answer to you.

  • Oren Shirazi - SVP of Finance and CFO

  • Yes.

  • In regards to the OpEx question, no we do not forecast any increase in the OpEx.

  • I mentioned before that Maxim acquisition -- we don't expect increase in OpEx.

  • So the [levers] that you see now in Q4 of 2015, which, actually, as you can see, the OpEx are even lower than it was a quarter ago, trying to do savings.

  • And we don't intend to increase the OpEx at all.

  • Marc Estigarribia - Analyst

  • Thank you.

  • Just a -- and thank you for the clarification, Russell and Oren.

  • With the interest rates going forward, or the payments, I should say, I think last year it was around $40 million per year, or in the past; and now it's closer to $15 million or $20 million.

  • Is that sort of -- now with the refinancing or the new loan from TPSCo, is that sort of the level that we should expect on the interest rate payments?

  • Oren Shirazi - SVP of Finance and CFO

  • Yes, like this year.

  • Because, like I mentioned, the new $70 million is replacing the old $70 million eventually, so -- and we have much lower debt and much lower bonds.

  • So it should remain the same level, like this year.

  • Very low compared to previous.

  • Marc Estigarribia - Analyst

  • Great, I appreciate it.

  • Thank you for the questions.

  • Russell Ellwanger - CEO

  • Thank you very much for the questions.

  • Operator

  • Lisa Thompson, Zacks Investment Research.

  • Lisa Thompson - Analyst

  • Just a couple quick questions.

  • I was wondering if you could tell us what the revenues were for TPSCo in 2015 -- only because that way we can back out the 49% you don't own to do valuations?

  • Oren Shirazi - SVP of Finance and CFO

  • Yes, so we initially said that TPSCo -- one should expect an amount per quarter of $90 million to $105 million a quarter.

  • 2015 averagely per quarter was $95 million, so exactly in the middle of the guidance, of the target -- whatever we gave forecast.

  • Lisa Thompson - Analyst

  • Okay, great.

  • That helps.

  • And as far as your breakdown of sales, what does it look like geographically in 2015?

  • And what you think it will look like in 2016 with Maxim in there?

  • Oren Shirazi - SVP of Finance and CFO

  • Geographically, so 45% of our revenues are to the United States; 41% to Japan customers -- not only Panasonic; 11% to Asia, meaning China, Korea, and some other things; and 4% Europe.

  • Lisa Thompson - Analyst

  • Okay.

  • And this year what's it going to look like?

  • Oren Shirazi - SVP of Finance and CFO

  • We expect it will be pretty much the same; maybe an increase in the US on account of Japan.

  • Asia and Europe should be the same, just because of -- that Maxim is a US corporation, and the growth of sales bought in TPSCo is mainly US customer.

  • So the ratio of 45% US to 41% Japan will grow towards in favor of US, less Japan.

  • Lisa Thompson - Analyst

  • Great, thank you very much.

  • That's all I have.

  • Operator

  • David Duley, Steelhead Securities.

  • David Duley - Analyst

  • People have been asking this a couple different ways, but I think one of the questions that I'd love to understand is: what would be the total Corporation's gross margins in Q1?

  • Can you help us with a guide there?

  • Do you want us to just guess what it is based on layering in this Maxim revenue?

  • Right -- I'm not asking what the Maxim gross margin is, but I'm asking what the total gross margin guide for the Company should be.

  • Oren Shirazi - SVP of Finance and CFO

  • If we say the total, so everybody can know the Maxim, because the baseline everybody knows.

  • But --.

  • David Duley - Analyst

  • You know, what's easy to point that number; so you can tell us now, or you can just wait till the quarter ends, and then we'll back into it.

  • But I think you might --.

  • Oren Shirazi - SVP of Finance and CFO

  • Yes, so positively, we always in the past were consistent to give quarterly revenue guidance but never gave quarterly gross profit, except from the one target of 40%, which was really an important milestone stretch target for us.

  • And we wanted to achieve it, and we achieved it.

  • So we don't give guidance for that.

  • I believe, Russell, if you want to add one?

  • Russell Ellwanger - CEO

  • We haven't -- (technical difficulty) I would prefer also not to start a precedent.

  • David Duley - Analyst

  • Well, I guess I'm not really asking for a precedent, but you've got tons of moving pieces, right?

  • Your drop rate fluctuates from to 70% to 100% on incremental revenue.

  • You're layering in, I guess, some revenue from Maxim that comes at a lower gross margin.

  • There's lots of moving pieces.

  • I was just curious if you could help us with some goalposts.

  • Russell Ellwanger - CEO

  • Just get excited.

  • David Duley - Analyst

  • Okay.

  • Is your core business going to grow sequentially in Q1?

  • Oren Shirazi - SVP of Finance and CFO

  • Yes.

  • David Duley - Analyst

  • Okay, great.

  • And did you have any 10% numbers customers during the quarter or the year?

  • And if you could help us -- for the year -- help us understand what the percentages were?

  • Oren Shirazi - SVP of Finance and CFO

  • Yes.

  • So of course, Panasonic, which I mentioned before: $95 million a quarter; if you calculate it, about 40%.

  • And there was another one which is above 10%, which we didn't specify.

  • It's part of the financial detailed report that we will file.

  • So I can say it's a 10%, but from a confidential point of view, we don't want to mention its name.

  • But so there is one at 13% for the year, and then there is nobody above 6%.

  • So the others are 6% or lower.

  • David Duley - Analyst

  • Okay.

  • And for 2015, can you help us -- what was your average wafer cost -- what was your average selling price in 2015?

  • Russell Ellwanger - CEO

  • I don't know that that's a very relevant number -- and I mean sincerely, because we have many, many different products.

  • We have some FET products that are only four layers.

  • We have other silicon germanium products that go up into 41, 43 layers.

  • We have some MEMS that are at 60 layers.

  • We have 300-millimeter, we have 6-inch.

  • So the average wafer price is maybe not so critical.

  • It really isn't very related.

  • David Duley - Analyst

  • Could you help me understand -- how many wafers were produced in 2015, then?

  • Oren Shirazi - SVP of Finance and CFO

  • I believe, Russell, you said the utilization.

  • So one can calculate -- I mean, it's public domain that we have 2 million -- capacity of about 2 million -- before San Antonio, 2 million capacity wafer per year.

  • And we had the utilization number that Russell said, so 90% (inaudible).

  • And about 40%-something TPSCo.

  • So can calculate, but we don't -- we never spoke about selling price per wafer.

  • David Duley - Analyst

  • Okay.

  • Could you take a guess at what you think your cash flow from operations might be in 2016?

  • Oren Shirazi - SVP of Finance and CFO

  • Sorry.

  • We missed your question, sorry?

  • David Duley - Analyst

  • A guess as to what your cash flow from operations might be in 2016?

  • Oren Shirazi - SVP of Finance and CFO

  • Well, it depends, of course, on the revenue, which we didn't give.

  • But you can look and see that the baseline of about $200 million a year this year refers to an EBITDA this year of about $249 million.

  • So whatever assumption you make on the revenue you should add 50% to 60% of that incremental to the EBITDA and to the cash flow from operations.

  • David Duley - Analyst

  • Okay, thank you.

  • And congratulations again on a nice quarter and nice year.

  • Russell Ellwanger - CEO

  • Thank you very much, David.

  • Operator

  • There are no further questions at this time.

  • Mr. Ellwanger, would you like to make your concluding statement?

  • Russell Ellwanger - CEO

  • Would love to, thank you.

  • I thank everybody for their interest.

  • I thank for the very good questions.

  • This is really, for Oren and myself, a very, very exciting time.

  • We are now entering our third five-year segment working together.

  • We began the second half of 2005, so our first five years was 2006 to 2010.

  • We went from negative to positive EBITDA, from negative to positive cash from operations, from $100 million annual revenue to breaking $500 million of annual revenues.

  • But most successfully during that period of time, and most importantly, we did complete the merger with Jazz Technologies, creating TowerJazz as not just a specialty foundry but as a leading analog foundry.

  • In these past five years, 2011 to 2015, we created a partnership with Panasonic, adding substantial capacity.

  • As stated during the call, the average 40% utilization there by photo layers shows the amount of capacity we have to build for third-party revenues.

  • We added incremental 300-millimeter advanced analog capabilities, became a lead supplier to many first-year customers over multiple and diversified groups.

  • With the TPSCo creation, significantly increased overall capacity, as well as organic investments into Newport Beach fab and the Migdal Haemek fab.

  • We have greatly strengthened our balance sheet, creating net debt EBITDA ratio below 0.4 -- improved all ratios.

  • And very importantly, we ended the year having hit our target of breaking $1 billion annualized run rate.

  • Now, at the very beginning of 2016, the start of our next five-year venture, we began it with a very, very strong deal; a very good partnership extension with Maxim with the San Antonio factory.

  • We're extremely excited to be in a position right now that we have approximately $1.5 billion of revenue capacity, and that that capacity for the core portion of it is paid for under a model where the financial fixed cost of it is predominantly taken care of.

  • So to be in a position now to start 2016 with a very nice sustainable GAAP net profit that has grown over 2015 with a $300 million EBITDA run rate and, really, for intents and purposes, the core portion of the capability already paid for to get to $1.5 billion, we are extremely excited.

  • We invite all of you to our investor day on March 8 in San Antonio.

  • It will be a very exciting day.

  • I would look forward to you seeing the facility there, seeing the grounds there, mingling with the workforce there -- a very excited, extremely capable workforce.

  • We'll be talking.

  • You'll hear from our different business units, from the President of the Company -- that I don't think many of you have seen -- who runs the business units of the Company.

  • You'll hear from the Chief Operating Officer at the facility itself.

  • You'll hear from Oren in great detail and also have the opportunity to speak more with me.

  • So I hope that you avail yourselves of this opportunity to visit us in San Antonio on March 8. The invitation and everything is posted on our website.

  • And please sign up.

  • So with that, I thank all of you for those that have been with us the entire journey so far, those that have joined later on.

  • Really, it's been exciting; it's been fun; it's been rewarding.

  • And I think right now we have so much in front of us we look forward to sharing with you.

  • Thank you.

  • Operator

  • Thank you.

  • This concludes the TowerJazz fourth-quarter 2015 results conference call.

  • Thank you for your participation.

  • You may go ahead and disconnect.