Earnings Call Transcript - WOLF Q2 FY2026

Operator

Good afternoon. Thank you for standing by, and welcome to the Wolfspeed, Inc. second quarter fiscal year 2026 earnings call. At this time, all participants are in a listen-only mode. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by 1 on your telephone keypad. If you would like to withdraw your question, please press star followed by the number 2. We ask that you limit your questions to one question and one follow-up. Thank you. Please note today's call is being recorded, and I would now like to pass the conference over to your first speaker today, Tyler Gronbach, Vice President of Investor Relations. Please go ahead.

Tyler Gronbach, Head of Investor Relations

Thank you, Operator. Good afternoon, everyone. Welcome to Wolfspeed's second quarter fiscal 2026 conference call. Today, Wolfspeed's Chief Executive Officer, Robert Feuerle, and Chief Financial Officer, Gregor Von Isom, will report on the results for the second quarter of fiscal year 2026. We would also encourage you to reference the slides that were published on the IR website today as we will be referring to them during the call 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. Reconciliation to the most directly comparable GAAP measures is in our press release and posted to the Investor Relations section of our website, along with a 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 mention important factors that could cause actual results to differ materially. Now, I'll turn the call over to Robert.

Robert Feurle, CEO

Thank you, Tyler, and good afternoon, everyone. We appreciate you joining us on today's call. As you can see on slide three, we have continued to build solid momentum across the business since reporting our fiscal first quarter results from achieving 50 percent quarter over quarter growth in ai data center revenue to producing a 300 millimeter silicon carbide wafer securing key customer wins and most recently completing syphilis clearance we've been moving the business forward in multiple fronts under our refresh leadership team boosted has sharpened operational discipline and strategic focus to ensure consistent execution. Since I've joined the company, we've brought in top-tier talent from across the semiconductor industry, people who recognize our unique position in the silicon carbide market and are helping us scale execution to better serve our customers and meet future market demand. As we outlined on our last call and cover on slide four, we're concentrating in a few key areas. strict financial discipline, advancing our technology leadership, and driving operational excellence. A central theme across these priorities is diversifying our revenue base, particularly in industrial and energy, including applications tied to AI-related power demand and grid modernization, by continuing to support our broad base of automotive and other device and material customers during q2 we continue to fortify our sales marketing and product teams adding experienced leaders with deep semiconductor knowledge and strong customer relationships these hires are already helping us extend our reach into emerging power device opportunities more on this later first and foremost we are making solid progress in applying strict financial discipline across the organization following our financial restructuring whose speed has a stronger capital structure, with net debt of approximately $600 million, annual cash interest expense lowered by approximately 60%, and a strong liquidity, which includes approximately $700 million in 48-G cash tax refunds we recently secured. Our cash position is $1.3 billion. As we move forward, we are operating with strict financial discipline, aiming to maintain our balance sheet strength and stability through diligent execution. Consistent with this focus, our second priority is advancing technology leadership across the entire silicon carbide value chain. As you can see on slide 5 of our presentation, we have positioned the company to win in both devices and materials, averaging our vertically integrated 200 millimeter footprint. Central to extending our technology leadership is our approach to deploying our R&D resources. We streamlined R&D to focus exclusively on high-return programs in the highest growth markets. Our third priority centers on our commitment to driving operational excellence, the focus on differentiating through quality, customer responsiveness, time-to-market, and supply chain resilience. As shown on slide 6 of our presentation, this secure and scalable infrastructure remains a core differentiator for the company as we execute our strategy and support growing customer demand. We remain focused on driving costs out of our footprint, processes, and products, even as we navigate undualization headwinds. We have officially completed the shutdown of all 150 mm device production over Durham campus roughly a month ahead of schedule, transitioning our entire device platform to a higher efficiency 200 mm manufacturing. We continue to improve production efficiency and speed to optimize the earnings potential of the business. The results of these efforts will be even more apparent when demand accelerates and we begin to increase FEP utilization. As I mentioned earlier, a central theme across these three periods is diversifying our revenue base in key verticals where I believe we can extend our leadership position, particularly in mid to high voltage applications. To accomplish this, we have organized our go-to-market strategy around four verticals that we believe will drive growth in our business in the near to midterm. Auto, industrial energy, aerospace and defense, and materials. And we are already seeing strong traction from these early efforts. Our first vertical, automotive, remains a core market despite muted EV demand due to a mix of macro and structural factors, which include higher interest rates in the U.S. and Europe, the elimination of certain government incentives in the U.S., access supply across the market, and intensifying competition globally, including China. Despite weaker near-term demand, our portfolio is aligned with OEMs that practice efficiency, range, and power density. A great example of this is our recently announced partnership with Toyota. one of the most respected and quality-driven automakers in the world, to power the onboard charging systems for their BEVs. Thanks to the efforts of our leadership team, they're strengthening our relationship with the top global EV OEMs, and we are now sampling across several key strategic programs. While these headwinds are creating a softer demand environment in the near term, silicon carbide remains a foundational technology for EV and other platforms. As highlighted on slide 7, silicon carbide continues to capture share in high-voltage applications where performance, reliability, and system-level efficiency are critical, positioning it as the preferred technology over both silicon and GAN. In IME, our second vertical, we are leveraging our expertise to expand our reach, concentrating on AI data center power, grid storage, solid state transformers, and broader grid modelization applications. We have the expertise to extend our knowledge into the AI data center opportunity, which operates at significantly higher voltages than legacy data centers. As I mentioned, as voltages increases, we believe an increasingly larger portion of this addressable market will be better served with silicon carbide technology, the legacy silicon-based solutions from grid to rack. As you can see on slides 8 and 9 of our presentation, Wolfspeak has a strong momentum in this area. The AI revolution is fundamentally reshaping data center requirements and accelerating the shift from general purpose facilities to purpose-built AI infrastructure that demands unprecedented power density and efficiency, playing directly into Wolfspeak's strength. Our devices are already embedded in critical AI data center power systems, and we have doubled our data center revenue in the last three quarters, with 50% quarter-over-quarter growth from Q1 to Q2. Further, we are actively collaborating with a broad ecosystem of partners to support the industry transition from legacy 400-volt architectures to next-generation 800-volt AI platforms. data center build outs and widespread electrification have driven a surge in global energy demand there are two key solutions to rising energy needs the first was bringing online new energy sources like wind and solar they're already seeing thin carbide adoption across wind and solar applications as evidenced by our recently announced collaboration with hope wind to advance the next generation of wind power solutions turning to our third vertical aerospace and defense we believe there is a growing opportunity due to the tailwinds from defense modernization and electrification including direct energy platforms u.s government has already recognized lone carbide as strategically significant to national security with both the department of war in the department of energy designating it as a critical material additionally the u.s government has emphasized the strategic importance of secure domestic semiconductor supply chains for national security applications and we believe wolf speed is best positioned to support those needs as you can see on slide 10 wolf speed is not only entrenched in established high voltage markets like AT&T World Automotive, solar, and industrial, but we believe we are also positioned to lead in the next wave of emerging high-growth applications from AI data centers and grid modernization to aerospace and heavy equipment. These opportunities demand material innovation that silicon carbide can deliver, which brings us to our fourth vertical, materials. In materials, we're executing a clear two-pronged strategy, scale and strengthen 200 millimeter leadership for power devices today, while advancing 300 millimeter capabilities to expand our long-term

Gregor von Isom, CFO

addressable opportunities. First, on 200 millimeter, material quality is increasingly critical as

Robert Feurle, CEO

customers push into higher voltage, higher power density applications. Substance performance influences everything that matters downstream device yield reliability and system efficiency so our priority is delivering high quality 200 millimeter wafers at commercial scale because wolfstreet moved earlier to commercialize 200 millimeter in a scaled manufacturing environment we believe we're best positioned to support not only our internal device roadmap but also merchant demand as the market continues to mature. Second, we are very proud to have recently produced a single crystal 300 millimeter silicon carbide wafer, a meaningful milestone that clearly demonstrates Wolfspeed's long-standing materials innovation. Importantly, our view of 3 millimeter is not that it replaces 2 millimeter for power devices in the near term. This helps lay the groundwork for silicon carbide beyond power but different end markets can value material properties like thermal conductivity and optical performance one example is optical grade silicon carbide for next generation ar vr systems their compact lightweight designs demand a high brightness and effective thermal management taking together this combination industry leading 200 millimeter materials for power today, plus early validation of a 3mm platform that can unlock emerging applications over time, reinforces our belief that Wolfspeed can maintain and extend its leadership in silicon carbide materials. Our efforts against our three strategic priorities, coupled with our vertical go-to-market strategy, enable Wolfspeed to capitalize on the incredible opportunity created by the transition from silicon to silicon carbide. Now, I'd like to turn it over to Gregor, who will walk through our financial performance for the quarter and provide more details on our path forward.

Gregor von Isom, CFO

Thank you, Robert, and good afternoon, everyone. I'll begin with a brief overview of our second quarter performance. Then I'll walk through the key financial impacts from our restructuring and the adoption of fresh start accounting. And finally, I will share our outlook for the fiscal third quarter. Starting with an update on some highlights of our second quarter, which we've illustrated on slide 12 of our presentations are as follows. We continue to make progress implementing strict financial discipline, focusing on the aspects of the business within our control. The closure of the Durham 150mm device FAT one month ahead of schedule is a good example of that. We upsized and collected the 700 million cash tax refunds in Q2. We also improved 89 million in working capital management excluding the headwind of final payments linked to our restructuring and further reduced both operating expenses and CAPEX investments. Now I'll review our quarterly financial results and speak to some of these updates in more detail which you can see on slide 13 of our presentation. We generated 168 million of total revenue in line with the midpoint of the guidance range we provided last quarter. Power revenue was 118 million, of which Mohawk Valley contributed approximately 75 million. This includes some of the last-time buy shipments from Durham campus or ahead of the closing I referenced earlier. As Robert mentioned, the revenue tracking is a mix between a weaker automotive market and fast-growing mid-to-high voltage revenue. This is linked to the good traction in AI and data center space. Materials revenue was $50 million, driven largely by a tightening demand environment and increased competition in the marketplace. Non-gap gross margin for the second quarter was negative 34%, which included several adverse effects. First of all, a $39 million drag related to fresh-side accounting, $23 million of which is related to inventory step-ups, which we digested in the quarter, as well as a recurring $60 million increase related to amortization for intangible assets. Furthermore, we recorded $14 million of cost-related specific inventory reserves, which further adversely affected the margins in Q2. The impact of underutilization in our manufacturing sites stood at approximately $48 million in Q2. As Robert noted, we completed the closure of the Durham 150mm device tab at the end of November, one month ahead of schedule, which improved gross margins by $5 million in the quarter. We'll continue to see benefits going forward as we focus on our 200mm device manufacturing in Mohawk Valley. We've continued to reduce non-GAAP operating expenses, which are now $200 million lower on a run rate base versus last year. At the same time, we continue to invest in R&D to re-establish and extend our technology leadership. The GAAP operating expenses totaled $83 million in the quarter, including approximately $24 million of restructuring and transition-related items. Adjusted EBITDA for the second quarter was negative $82 million and included the impact of the previously discussed fresh start accounting implications as well as the underutilization. Adjusted EBITDA is largely unaffected by fresh start accounting impacts on a go-forward basis. Now I'm turning to cash flow, which remains one of our top priorities. We are making strides in reducing our working capital by reducing inventory and receivables. Our discipline-focused contributed approximately $90 million to ending cash, partially offset by the final liability management payments of $64 million we made in Q2. Our operating cash flow for Q2's successor period was negative $43 million. As you can see on slide 14, we have also continued to reduce CAPEX, which was just $31 million in the second quarter, which were primarily linked to prior commitments. This is a substantial improvement from the approximately 400 million of CAPEX in the second quarter of last year. Looking ahead, we remain committed to a disciplined capital allocation strategy and drive CAPEX further down over time as prior commitments start to fall off. As announced earlier, we have received 700 million of 40 AD tax credits in the quarter. We have used a part of our cash to reduce $175 million of our first lien debt. In addition to retiring some of our first lien debt, approximately 1.5 million shares have been converted from our second lien convert, resulting into a debt reduction of approximately $18 million. Together, these form a first step to further improve our balance sheet post-emergence and will deliver $25 million in annual interest savings. We ended the quarter with $1.3 billion in cash and short-term investments. This stronger liquidity position enables us to pursue our strategic priorities with confidence. We have made significant progress in addressing our capital structure thus far, and we recognize that we have further work to do in this area. We believe our results in Q2 reflect meaningful progress in improving our operations, enhancing capacity and improving our earnings potential, but there is still work ahead of us to improve further with factory utilization as one of the main levers. Next, I'll review the impacts on the financials as a result of the adoption of fresh-side accounting. I would also encourage you to reference our press release, slide 15 and 16 of our presentation, and form thank you for additional details on this topic. As you know, over the past year, we took important steps to strengthen our capital structure, positioning Wall Speed to emerge from our restructuring on firmer financial footing. As part of these efforts, it is required that we adopt Fresh Start Accounting, which marks a true reset for Wall Speed. With Fresh Start Accounting, our income statement for the second fiscal quarter of 2026 is split between the predecessor period ending on September 29, 2025, which reflects activity up to and including our emergence from Chapter 11 and a successive period beginning September 30, 2025, which reflects our results after emergence. We were able to emerge from Chapter 11 on the first day of the fiscal quarter, so our successive period effectively includes all operating income for the quarter. Unless I say otherwise, the details that I will outline in a moment pertain to the successor period only, because fresh start accounting requires that fair values are estimated for a company's assets, liabilities, and equity as of the date of emergence. Certain pre- and post-emergence financial and operating results will not be comparable. All adjustments related to fresh start accounting are non-cash. As part of the fresh start process, we re-measure our assets and liabilities to fair value, anchored to the court-approved enterprise value at the midpoint of $2.6 billion. Our new debt, measured at fair value, replaced the legacy debt. We also recorded a $1.1 billion gain from emergence, which reflects approximately $3.7 billion in debt forgiveness, offset by approximately $2.6 billion of net adjustments to assets, primarily property, plant, and equipment. Looking ahead, we expect a net reduction of approximately 30 million per quarter in depreciation and amortization compared to pre-emergence wall speed due to the lower property plant and equipment on the balance sheet partially offset by the step-up in intangibles. The application of fresh start accounting also results in fair value adjustments to step-up work in progress and finished goods and step-downs in our raw materials the 23 million step up related to work in progress and finished goods was recognized in cogs during the second quarter resulting into a one-time headwind as i mentioned earlier in my gross margin comments the favorability from the 17 million step down related to raw materials will only be realized in the pnl over the next several quarters while fresh start accounting limits comparison across the predecessor and successor period i want to reiterate that adjusted EBDA is largely unaffected by fresh start accounting impacts, except for this quarter. Lastly, we received final clearance from CFIUS to allocate equity shares to Renesas in connection with our previously approved restructuring agreement. This regulatory approval enabled the release of approximately 16.85 million shares of new common stock to renaissance. In addition, we completed the distribution of the final two percent equity recovery, representing approximately 871,000 shares to our legacy pre-petition shareholders. Our total shares outstanding are now 45.1 million. Finally, let's turn to our outlook on slide 17 of our presentation. While the automotive end market remains volatile in the near term, We are encouraged by the growing momentum in key strategic areas such as AI data centers and other industrial and energy applications. These emerging opportunities represent meaningful long-term growth drivers, but they will take time to scale and offset the continued softness in EVs. During the third quarter of fiscal 2026, we expect revenues between $140 million and $160 million. The decline is driven primarily by accelerated customer purchases in our first fiscal quarter, as certain customers build up inventory by placing orders from the Durham FAB prior to its planned closure. Certain customers pursue a second sourcing of products during wall speed and weaker EV demand. the company expects opex to be flat to slightly down sequentially as we remain confident in controlling operating costs through actions already implemented lastly due to the ongoing fresh start accounting impacts wall speed will not yet provide a numeric gross margin guide but does expect further quarter over quarter improvements driven by ongoing operational actions. However, gross margin is expected to remain negative in fiscal Q3. As we mentioned on last quarter's call, we expect to provide an update on our long-range plan in the first half of calendar 2026, where we will give an update on the long-term financial targets and capital allocation plans. With that, I'll return the call back over to Robert.

Robert Feurle, CEO

Thank you, Breger. Across the business, our team is working tirelessly to drive progress against our strategic priorities and to mobilize our scale and technology advantages. All of these efforts are intended to strengthen our ability to capture the next wave of growth in silicon carbide. By the near term, demand picture remains dynamic. Two trends remain clear. First, First, electrification is happening across new markets every day. Second, voltages will continue to increase, necessitating more power density and increased energy efficiency. We are building a stronger, more resilient Wolf Speed. With an improved financial foundation, experienced leadership team, and our vertically integrated platform, we are strategically positioned to drive long-term growth and value as we define the future of silicon carbide technology.

Operator

operator you're now ready to take questions thank you we will now begin the q a session if you would like to ask a question please press star followed by one on your telephone keypad if you'd like to remove your question press star followed by two again to ask a question press star one and as a reminder if you are using a speakerphone please remember to pick up your handset before asking a question and during the q a session we ask that you please limit your questions to one question and one follow-up the first question comes from the line of brian lee with

Brian Lee, Analyst — Goldman Sachs

goldman sachs you may proceed hey guys good afternoon thanks for the updates here um appreciate the slide deck as well a lot of new information so maybe the first question um just thinking about the strategy you mentioned the diversification away from evs you know key segments like a and d grid monitor modernization ai data centers um maybe just walk through a little bit of how how that's going to work um and then what it requires for you to change how you go to market

Robert Feurle, CEO

and maybe the timeline involved and then i had a follow-up yeah thanks um brian um at the end of the look what we're doing is we're pretty much looking into pivoting away from being a one-trick pony focus on evs um so this means here when i started i kind of turned the organization the corporate go-to-market organization to be application oriented yeah and from coming from a product oriented setup which means we're really looking into now automotive industrial energy and aerospace as the defense and pretty much take these these application requirements into what does it take to build these these products and i think what you can see here with our progress quarter over quarter and ai data centers that that revenue growth here is really starting to starting to pay off in addition to that it's also to get the right sales organization and the right channel strategy in place right this means a clear tiering of what are the key accounts in this respective application segment but also especially imd segments these are it's a large number of customers so really getting a channel strategy around distribution and specifically for the u.s a rep structure in place this is all in progress as we've brought in some really good new talent from the outside from from other big semiconductor companies great that's helpful

Brian Lee, Analyst — Goldman Sachs

color and then maybe just a follow-up on the um the financials and the balance sheet um you know a lot's changed uh and maybe more is going to change but could you guys um remind us is there any expected interest rate step up on the first lien this year or next year? And then I think up until recently, the 2031 converts were sort of in the money, but are you contemplating doing any sort of additional financing strategic maneuvers with respect to the first lien and the converts, just given the equity and where it's been trading? Thank you.

Gregor von Isom, CFO

Yeah, maybe, Robert, I can take that one. So you're right. So we took obviously first big steps with emerging from Chapter 11 and restructuring the balance sheet in that process. And then we focused very much on collecting the cash from the 40 AD and using a first pay down of the L1s. But that's just the first step. And we are very much aware of the situation and opportunity potential in the convert area. which we're deeply looking into at the moment, alongside other options that we have. So, as I mentioned in the script earlier, is that we realize there's more work to be done, and over the next period, we will be very actively looking at that. Very concretely, the interest rate will step up around the middle of calendar year 2020-06, and at that moment, also, some of the make-whole premiums step down. So, in our view, that is definitely a very high cost of capital there and something to be looked at. For the rest, we continue to focus a lot on the strict financial discipline. So, you've seen we focus a lot on getting more cash out to working capital. I hope to make some further improvements there as well. And we believe that with the long maturity and the strong cash balance, We do have the time to look into this refinancing topic in a structured and, yeah, good way. Appreciate the color.

Operator

The next question comes from the line of Christopher Rowland with Susquehano. Christopher, you line is now open.

Christopher Rolland, Analyst — Susquehanna

Excellent. Thanks, guys. Appreciate the question. So I also wanted to dig in on some of these other opportunities, particularly AI Data Center, I think from a power perspective, it's pretty interesting right now. If you guys can talk about kind of what your AI data center revenue consists of today that was up 50% quarter over quarter, and then going forward, kind of your top sockets. Is it going to be SSTs or in the power supply, or we're hearing even potentially for substrates? Would love to know about your competitive position there and how big this thing could be for you guys eventually.

Robert Feurle, CEO

Yeah, thanks, Chris. I mean, really, very, very good question. So let me kind of take them one step at a time. think also what's happening in the ai data center space especially on the and the rack side is that today you're around about the 100 kilowatt ish per rack yeah that's kind of moving in two years from now to like 600 kilowatt per rack into like a mega rack like in the 20 29 20 30 time frame this means you have to go figure out how do you power these racks and how do you get the energy from the energy generation to that rack and i think this is where exactly both speed can play to the full advantages coming from the energy generation which is pretty much really going into the in from the kilowatts and stepping that voltage down and then as more and more renewables come into the mix you need also a lot of energy storage systems in between to kind of buffer glitches and these type of things so that's kind of the next portion we are focused on and then of course you need to get this energy into the data then they will you know with transformers right and there is a transition happening from traditional transformers to solid state transformers where also silicon carbide is the perfect perfect solution i would say that transition is starting to happen here so we're really playing in terms of energy generation energy storage system solid state transformers but then also you look into in the data center there is the ups so the under uninterrupted power supply is a big um big application and then again 40 percent of the energy in the data center is is um let's say consume for cooling devices another way to say hey can you have built these systems more effectively you see this is not just one application these are multiple applications spanning across the whole power range um i think this is something what we're very actively working on and we get multiple excellent customer engagements and partner engagements on that side we announced a new package just uh recently kind of this topside cooling package here really looking new to build specific products for for that for that application coming to your questions on the substrate so what we are seeing is that silicon carbide from it from a materials perspective has unique properties um and and one unique property is thermal conductance right i mean it is one of the best materials for thermal conductance and has great optical properties and i think here there's clear interest to explore now to see is there a way to use this thermal conductance in in some type of improvement for the system architecture. This is why we've also kind of pioneered this base on developing a single crystal through the millimeter paper here and we have very early ongoing discussions with key partners in the industry to say hey you know with us now being able to produce really large scale single crystal silicon carbide here um kind of what could be a potential potential solution i mean this is something where i cannot give you a exact timeline on revenue coming into the company but this is something where we can have very good um interest and very

Christopher Rolland, Analyst — Susquehanna

partners various partners in the in the industry excellent sounds very exciting um the uh my second question is around just kind of stability moving forward uh and then you know eventually growth and I think you guys talked about the fiscal first half customer purchases um from from Durham transition uh obviously it sounded like a pull-in of orders um where are we in digesting those orders and alleviating that overhang and when do you think you have confidence in the bottom and then building growth on top of that bottom again how should we think about these different

Robert Feurle, CEO

dynamics yeah I think there are various topics playing in this the one is clearly the transition from 150mm devices to 200mm devices is such a path transition you always have customer purchasing more for end of life in the parts right i think so that is pretty much the end of life thing is done right the 150 millimeter factory is shut down we took the cost out of the of the company also the running cost of the company and i believe here with that step also we are really the first company um in the in the western world who's completely only manufacturing on two millimeter devices and then of course it comes the question to to demand right and and i think we talked about this also in the in the earnings call it's it's a very dynamic market environment especially around the ev side here and it's really hard to predict in terms of visibility of kind of how that will that will develop on the long run i think look the electrification of the drive train is continuing right i mean if you see it just recently saw a market research forecast right slightly over 90 million cars getting sold around about 20 percent of these cars being you know evs yeah and that that that portion of evs is just going to grow right towards end of the decade i saw some forecasting around about 50 percent of the cars being sold end of the decade are our evs right and then in these evs you have kind of two two dominant voltages for the batteries the one is an 800 volt platform the The other one is a 400-volt platform. And for the 800-volt platform, I mean, the primary solution is to do the traction and where do silicon carbide. So I think so the overall trend, long-term, of adopting silicon carbide, using this in EVs, and also, again, we talked about the AI data and the opportunity, it's real, right? Can I tell you exactly kind of short-term what will happen? No, with all the macroeconomic factors playing into this. Thank you for that, Colin.

Operator

The next question comes from the line of Jed Dorsheimer with William Blair. You may proceed.

Jed Dorsheimer, Analyst — William Blair

Hey, thanks. Thanks for taking my questions, guys. I guess first one for you, Gregor, you know, just a follow-up to Brian's previous question is it would seem like, you know, dealing with the L1s in some capacity might be the lowest hanging fruit. So I'm just curious have you kind of looked at what the potential savings and interest could be i'm just wondering in terms of you know as you explore different options are you talking about sort of a 50 to 100 million annual savings are you talking 150 like what what is the scope of that and then

Gregor von Isom, CFO

i have a follow-up yeah i think it depends a little bit on how we would execute some portion of the refinance of the l1 um as said there are several options and it depends a bit on what what is available given the specifics and nature of just emerging for chapter 11 so we are very actively looking at that you know our cost of capital is right now very high and there will be a further step up so that is something that we are looking for to to address head on um i think the exact amount of inventory interest reduction will really depend on the instrument we will use and the size of the first step we can make and i think it's a bit premature to indicate exactly how big that would be but i'm looking for making uh let's say material first steps there but it's probably not going to be in a one in a one-go transaction if that helps thank you it does yeah

Jed Dorsheimer, Analyst — William Blair

Yeah, I mean, I think you addressed sort of, you know, scope. I guess second question would be for you, Robert. With respect to Seiler City and, you know, just I know you can't guide or, you know, premature to frame around the 300 millimeter for virtual lens opportunities, but that would seemingly be the fastest way to fill that fab. So, I'm just wondering, is there any framework to think about how the timing of utilization should the AR, VR-type opportunity ran? How should we be thinking – how should people be thinking about that?

Robert Feurle, CEO

Look, I mean, at the end of the day, we're always adjusting, you know, kind of the production to the demand, right? And we're going to be scaling this up as demand, you know, picks up. and at the end of the day this is really dependent on customer adoption of the technology right now and then of course we are we are ready to scale i mean look the good thing is here with full speed here we got really the facilities we got the capex which was spent here um pretty much in both the device tab up in mohawk valley and also as you said on the material side here we got you know capacity in durham but also in inside the city here the factories are built right so this means at the end of the day it is really now looking into how do we get customers how do we get pretty much you know new applications yeah to drive that growth is this something we completely have in our hand no because we need to make the customer we need to make an architectural choice right and then of course we need to go we get this qualified and and wrapped and this is why i think you know diversifying here the the customer base um the go-to-market and and also how we think about understanding the end application is such an important piece of getting both speed here into the right into the right position great thanks guys the

Operator

next question comes from the line of Samik Chatterjee with JP Morgan you may

Speaker 1

proceed hi good afternoon and thanks for the question this is Joe Cardoso on for Sonic maybe for my first I just wanted to follow up on the Evie comments you made but maybe less on the market itself and just more curious how we should think about will speeds positioning in the market today particularly following a somewhat turbulent 12 months or so like how but also kind of on the heels of the recent announcements like the one you mentioned with toyota just curious what you're seeing across customer conversations and dialogues and any incremental color you can provide on that front and then i have a follow-up

Robert Feurle, CEO

sure um so look again we've been announced the partnership with toyota right which is pretty much showing we're diversifying here also also globally and and clearly toyota is a you know very well known a brand for for quality so i think you know this is an also testament to the the great cooperation between between the two to the companies yeah and then of course we're really here looking into um yeah diversifying here globally but also in terms of within the the ev makers as i said right i mean really the emergence of this 800 volt battery platform it's really the perfect fit for the silicon carbide in the traction inverter and this is what we're really really focused on a lot of them are valuing our vertical integration right I mean if you saw so what happened recently around you know rare earth obviously so kind of what happened last year also around gallium pretty much all of a sudden certain countries restricted these yeah materials from being exported right a lot of customers availing okay full speed you have the manufacturing capabilities you have the capacity and you have this right here in the united states right i mean if you see kind of our footprint is pretty much first of all very lean yeah but it's also something which we have under our control there is pretty much between north carolina mohawk valley and our device and module site in arkansas right i mean we can really move very fast and we have this all under under one roof so this is really something where a lot of customers like it and we have again here a lot of you know sampling ongoing with with various key customers here for for for programs

Operator

that concludes today's q a i would now like to pass the call back for any closing remarks

Robert Feurle, CEO

thanks everybody for for joining us on the call today here um thank you

Operator

thank you for your participation and enjoy the rest of your day