Wolfspeed, Inc. (WOLF) Q4 2026 Earnings Call Transcript

Hello, everyone. Thank you for joining us, and welcome to the Wolfspeed, Inc. fourth quarter fiscal year 2026 earnings call. On the call today from the Wolfspeed team is Chief Executive Officer Robert Furley, Chief Financial Officer Gregor Van Eesom, and Dan Whalen, Vice President, Investor Relations. After today's prepared remarks, we will host a question and answer session. I will now hand the conference over to Dan Whalen. Dan, please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to Wolfspeed's fourth quarter fiscal 2026 conference call. We encourage you to reference the slides that were published on our IR website today. Please note that we will be presenting non-GAAP financial results during today's call, which we believe provide useful information to our investors. Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies. Non-GAAP information should be considered as a supplement to and not a substitute for financial statements prepared in accordance with GAAP. A reconciliation to the most directly comparable GAAP measures is in our press release and posted in the investor relations section of our website along with the historical summary of our other key metrics. Today's discussion includes forward-looking statements about our business outlook, and we may make other forward-looking statements during the call. Such forward-looking statements are subject to numerous risks and uncertainties. Our press release today and the SEC filings noted in the release mentioned important factors that could cause actual results to differ materially.

With that, I will turn the call over to Robert. Thank you, and good afternoon, everyone. We appreciate you joining us today. This quarter marks another step in building momentum since we substantially refreshed our leadership team and capital structure the fourth quarter revenue results of 150 million represents another quarter of delivering results at the midpoint of the guidance range and further demonstrates we are delivering on our commitment reflecting on this past fiscal year we have proactively taken aggressive actions including recapitalizing the company to strengthen the balance sheet and bolstering our leadership team and our sales organization with seasoned industry veterans. We have also adjusted our go-to-market sales strategy and positioned the company to refocus on our technology leadership and a customer-centric approach. But we have accomplished a lot as we continue to deliver on our commitments. We remain early in our transformation and as each month and quarter passes, we continue to gain further confidence in our path to profitability. as we execute our strategic priorities and navigate broader industry dynamics. As I said on my very first earnings call leading the Wolfsby team, we have enormous potential underpinned by strong foundation elements. Since then, we've been proactive building upon these strengths while attracting and incorporating industry veterans with extensive customer relationships to leverage, optimize, and capitalize on our physical, operational, and intellectual assets. Most recently, as announced late July, Andy Mattes was appointed to our board of directors. As a former CEO of Coherence and D-Bolt-Niksdorf, with more than 40 years of leadership in semiconductor and advanced technology industries, brings a strong record of strategic leadership, operational excellence, and industry relationships to further bolster and accelerate our path to profitability. Also, in early June, we announced the launch of a dedicated data center solutions team to capitalize on the further growth in our fastest growing end market. To lead this effort, we appointed two industry veterans in the San Francisco Bay Area, the epicenter of tech innovation, who have extensive experience in high voltage power architecture for AI and data center applications. Our investment and focus in AI data center applications is gaining momentum, reflected in both revenue growth and expanding customer traction in fiscal 2026 revenue in this business more than doubled versus fiscal 2025 including increasing approximately 20 percent from the fiscal third quarter to the fourth quarter we continue to see encouraging progress as new design wins ramp at leading power supply companies including lighton macmeat and others to support multiple hyperscaler customers these wins span both established and emerging hvpc ai architectures transition to 800 volt architectures is increasing silicon carbide content across the data center power ecosystem if these next generation power architectures become a critical enabler of ai infrastructure hyperscaler customers are placing greater emphasis on system efficiency quality and supply assurance. Beyond AC DC power supplies we are seeing opportunities emerge across battery backup units, supercapacitors, e-fuses and high voltage DC to DC conversions. We are also pursuing opportunities on the secondary side of high voltage DC to DC conversion systems which could further expand our addressable market over time. While the market remains in its early stages, we believe our technology leadership and available manufacturing capacity position as well participate in this long-term growth opportunity. With industry-leading SIG technology and differentiated vertically integrated 200 millimeter manufacturing capability, we are well positioned to support this transition AI data center adoption continues to scale. These are all clear examples demonstrating the team is executing and delivering on the key strategic priorities we committed to. I will also comment on a few updates regarding our commitments to technology leadership. another key strategic priority. This past June, we announced two significant achievements at PCAM, a leading power technology conference in Europe. Gen 5 MOSFET technology and 10 kilovolt MOSFET commercial readiness. At PCAM, we announced our fifth generation silicon carbide MOSFET technology, making another significant milestone in our innovation roadmap. Gen 5 MOSFETs deliver the best specific on-state resistance in the industry while maintaining the excellent switching behavior introduced in our Gen 4 mod sets. This combination represents a substantial performance leap in efficiency over competitive solutions, giving our customers the option to maintain efficiency and reduce the overall size of their systems, or maintain system size and achieve greater power density. Gen 5 enables more compact traction inverters, extended EV driving range, wide-sized battery systems, and improved EV charging infrastructure, directly addressing the cost and efficiency pressures faced by automotive OEMs. Beyond automotive, Gen 5 also addresses several industrial power supply applications demanding leading-edge performance, including AI data center power supplies, solar state transformers, and renewable energy conversion. Importantly, Gen5 was developed and is running in our highly automated 200mm facility in Mohawk Valley in upstate New York. This provides our automotive and industrial customers with a rapid, low-risk path from design-in to volume production. While we are diversifying our revenue and customer base beyond our historical core concentration as discussed above, we are also continuing to develop and improve our automotive customer relationships. To this point, our previously announced partnership with Toyota for onboard charging systems reflect the continued importance of silicon carbide in next-generation EV platforms. More recently, we were awarded first-time business from a European Tier 1 supplier supporting the onboard charger for a large German OEM. To touch on the aerospace and defense market briefly our 10 kilovolt silicon carbide MOSFET was acknowledged at the PCM as the top innovation at the conference. We also recently announced a memorandum of understanding of GE Aerospace to accelerate the adoption of high voltage silicon carbide across the industrial aerospace and defense market. This technical partnership includes the supply of the industry's first commercially available 10 kilovolt SIG MOSFET from full speed and will ensure co-development of standard high voltage power module format this domestic partnership strengthens our supply chain resilience and aligns with us government priorities around critical technologies for ai energy defense and national security now materials business we continue to serve a broad range of power and rf based customers including our 150 millimeter lta customers We are also working closely with them on their 200mm transition by providing state-of-the-art samples and technical support. Our increased focus, customer-centric approach and operational discipline continue to be the backbone of these relationships. Regarding our 300mm substrates, we continue to explore new opportunities and make steady progress. Since our last update has begun shipping the first engineering samples to multiple customers for their internal evaluation, We continue to view this as a longer-term growth opportunity. Prior to turning it over to Gregor, I will close by saying thank you to the entire Wolfsby team for their continued commitment, execution, and drive. Our strategic alignment is significantly improved with new leadership and new sales strategy and a stronger capital structure. Edda positioning us to capitalize on long-term industry trends. This will continue to strengthen our earnings potential and we believe will ultimately deliver significant value creation for shareholders.

Thank you Robert and good afternoon everyone. In addition to the key strategic priorities reviewed by Robert, we have also made great strides with our operational excellence initiatives which will continue to increase our earnings potential and differentiate us in the marketplace as partner of choice. I will turn to our fourth quarter results. We generated $150 million in total revenue for the quarter, in line with the midpoint of our guidance. Materials revenue was approximately $43 million. Our revenue was approximately $106 million, which represents 6% sequential growth as the quarter benefit from strength in AI data centers, which increased approximately 20% from Q3 to Q4, and more than doubled from fiscal 2025 to fiscal 26, which helped to compensate for the softer results in automotive. Our adjusted non-GAAP cost margin for the quarter was minus 19.9%, reflecting a 70 basis point sequential improvement. This was driven primarily by product mix, including higher INE sales in power and higher RF sales in materials. underutilization continues to be the primary driver of our gross margin profile and improving factory utilization remains one of the most important levers to drive margin expansion as i mentioned during the third quarter earnings call we continue to focus on producing the same revenue with less capacity consumed these continued efforts position us to keep expanding our earnings potential per dollar of invested capital even if it makes the reported underutilization appear larger. Non-GAAP operating expenses totaled $62 million in the quarter versus $61 million in the prior quarter, largely due to continued investment in R&D and marketing-related expenses. Adjusted non-GAAP EBDA for the quarter was negative $62 million, comparable to a prior quarter. Gross capital expenditures were only $5 million in the fourth quarter versus $38 million in the prior quarter changes in working capital contributed approximately 23 million to cash for Q4 driven primarily by continued reduction of inventory levels now turning to cash flow which remains one of our top priorities operating cash flow for Q4 was negative 54 million and included a 41 million benefit from further reduction of inventory levels in the quarter We ended the quarter with approximately $1.1 billion in cash and short-term investments, allowing us to pursue our strategic priorities with confidence. We continue to pursue aggressive efforts to reduce our debt and cost of capital. During the fourth quarter, our capital structure further improved as holders of $46 million of our 2L convertible nodes exercised a voluntary conversion of their debt to equity. This debt principal decrease resulted in approximately $1 million of annual interest expense savings. Net debt was approximately $600 million at the end of the quarter. Turning to our business outlook, we continue to see growth in our device business and our targeting revenue between $140 and $160 million in the first quarter of fiscal year 2027. We are expecting non-GAAP gross margin to remain negative. As we are entering the new year, we are now expanding our guidance to include non-GAAP operating expenses, and we expect them to be in the range of $62 million to $66 million in the fiscal first quarter of 2027.

Thank you, Gregor. before we open the call up for questions i will reiterate we are laser focused on continuing to deliver on our key strategic initiatives including technology to shift diversifying our revenue and customer base operational excellence and financial discipline summatively this will cement our path to profitable growth stronger earnings power and greater value creation for our shareholders with that operator we are now ready to take questions We will now begin the question and answer session.

Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Christopher Roland with Susquehanna. Christopher, your line is open. Please go ahead.

Hi, and thanks for the question. I guess my first is just going to be a pretty simple near-term question. You know, when it comes to automotive and industrial your primary customers what are you seeing what does the outlook look like both for materials and devices and are you confident that June is the bottom for for this business yeah I think yeah I mean thanks thanks for the question is Robert here so pretty much what we see is that our diversification efforts in terms of you know broader customer structure globally is is really starting starting to to do pay off right and then of course we cannot influence the demand of our our end customers but what we can clearly see is

that pretty much both in the ine space and also in the auto space we see now really good tractions and again we also announced here one additional design window at a driven car oem for onboard charging and and we see really a broad engagement across across the globe how the overall demand will develop across these end verticals is it's hard to it's hard to predict quite frankly speaking here there's also some of our customers are going through product mix changes especially and on the auto side here so i think it's something which is which is rather hard to play uh thank you robert uh maybe as a follow-up there's a ton of interest in ai uh you've talked

about ai revenue um i don't know if you have any uh projections perhaps for next year uh and where you might be, but if you could talk about the progression of products that you will be releasing to market and or have design wins for, obviously you had the announcement with light on. I believe that's for PSUs for a sidecar.

I don't know if there's any timing around that, but SSTs beyond on that perhaps even with your 10 kilovolt solutions maybe if you could talk about the progression uh and new product opportunities and what that timeline might look like absolutely great question so you know we doubled our revenue from fy 25 to 26 and it just shows you kind of the momentum this this market segment has gained and quite frankly speaking this was not on anybody's radar screen a couple of years ago in terms of the product portfolio you will be quite frankly looking into again like i said on the on the psu side discrete devices here we are engaged and we named two of these companies mac meat and light on an hour press release also here but of course we were engaged with you know across the whole ecosystem for on the power supply side and then working with you know the major solid state transformer companies on the higher voltage devices which are primarily 2.3 and 3.3 kilovolt modules and you know here it's you know around how do we get you know the end customers which are the hyperscalers comfortable pretty much with the reliability aspect and also you know making sure that they are comfortable pretty much deploying these these ssgs so we're really engaged from 750 volt devices 1200 volt devices you know 2.3 kilovolt devices 3.3 kilovolt devices then again in the highest the higher the voltage comes the more differentiated the product and we have the product now and we have this in our 200 millimeter mohawk valley fab so what we're getting a lot of requests from these customers is okay we're not going to go deploy this now are you ready to ramp and and the good news is with us having completed the six to eight inch transition i think this is a huge huge asset for us as a as a company, right? And as you know, we're vertically integrated. It means we got the substrate, we got the product, and again, we're really all here to conserve them out of the Mohawk Valley Fab.

Your next question comes from the line of Joshua Buchalter with TD Cowan. Joshua, your line is open. Please go ahead.

Hey, guys. Thank you for taking my question. Maybe following up on Chris's last one. So I think you called out, you know, great to see the data center business doubling, but it still remains modest um i guess any timeline or or you're able to offer us on when you would expect data center revenue to become more meaningful and i guess how much of that is tied specifically to the 800 volt architecture versus broader compute and ai deployments thank you yeah so again the couple of factors driving you know the demand the one is of course the 800 volt deployment that that's a big milestone here which is you know which is going to happen and we're working on various qualifications across the whole ecosystem but then also the whole deployment of solid state transformers right i mean this is where you know i talked about it 2.3 kilowatt 3.3 kilowatt devices are really important and us being able to deliver these devices from our moeck valley factory is putting us in a really good good situation to take to take advantage of that of that demand got it thank you and then for my follow-up um any help you can give us on the gross margin trajectory either near term or longer term like I guess for the medium term you know what level of Mohawk Valley utilization or revenue is needed for gross margins to flip positive thank you yeah and thanks for the question I think indeed cost margin neutrality is the next big milestone for us to drive towards that is particularly driven by volume growth as you know

we have a high fixed cost nature in our business revenue expansion is the best way to improve our margins uh inherent profitability of the products is uh is quite okay i would say so it's really about asset utilization um it greatly depends on the exact mix you have between devices and material but also within materials on the end market so we're pretty happy to see that some of the industrial markets having a lot of traction, including the data center side. But in a ballpark, we would say on 800 million annual run rate, that's probably the ballpark where a break-even gross margin point lies right now. But again, that could be plus minus several million, depending on the mix.

Your next question comes from the line of Jed dorsheimer with william blair jed your line is now hey guys thanks for taking my question um so my first is uh could you just take a minute and maybe um come back and talk about what you could do in terms of cash management and specifically around the l1 and what that would save in terms of interest i believe that is callable at this point in time what would that save you on annual interest and what would that do to your cash burn and then i have a follow-up uh thanks for the question um obviously the firstly in depth is the highest prior debt to

refinance right now it's around 16 interest depending on the means of refinancing um you can calculate on the 630 million of outstanding debt how much saving that would be but again it depends on what type of refinancing or repayment that that would be but it would be a meaningful contribution to the to the cash flow in this particular quarter overall we have spent 32 million in cash out of the total 54 in operating cash flow so you can see it's a meaningful amount obviously that's not all coming from the l1 but a significant portion of that got it and then

And just as my follow-up question, that retiring the L1 would also unencumber the ability to break the business in two between materials and power. Is that still the case? I believe the covenants previously had maintained that Apollo would have to sign off on that. But I'm assuming if the L1 was taken care of, that would unlock that covenant. Not that you're planning on doing that. I'm just wanting to make sure that I had that correct.

I would say I don't go into that. We have absolutely no interest to break it into. So whether that's allowed or not, it's quite irrelevant from our perspective. We believe that having a vertical integrated business drives in really a performance differentiator when it comes to our device performance. I think when you look at the Gen 5 product performance that we have released at the PCIM, We have seen a leap in performance that others have not been able to achieve with the technology in play, and we are convinced that this is to a certain extent contributed by the fact that we're vertically integrated. So whether that may or may not be true, I don't think really is relevant for us at all.

Your next question comes from the line of Joseph Cardozo with AP Morgan. Joseph, your line is open. Please go ahead.

Hi, good afternoon. Thanks for taking the time. This is Akanch on for Joe Cardoso. Just had a broad question here related to materials revenues. 43 million this quarter while you support 150 millimeter LTA customers through their 200 millimeter transitions. How do we think about materials revenue from here?

And when does 200 begin contributing more meaningfully to the overall number? so we're working with all the major customers on qualifying the eight inch to 200 millimeter materials as we speak and you know some of them are digesting you know inventory levels and i think it it kind of we're we're exactly in this transition from from six six to eight inch and you know some ltas are running out some ltas on 150 are still continuing and this is something I would say here which will continue for for this year as we're seeing this transition here here to happen but as we see of course overall demand for silicon carbide and you know if you look in all the market studies silicon carbide market is growing this means also our customers on the material side will transition to 80 inch eventually and then we clearly are in a very good position with leading edge you know quality and leading edge technology on 8 inch side to take full advantage of that.

Thank you.

We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.