Transphorm, Inc.

Good afternoon. My name is Savannah and I will be your conference operator. I would like to welcome everyone to today's transform business update conference call. All lines have been placed on mute to prevent any background noise and after the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, please press star one again. Please be advised that today's conference is being recorded. Joining today's call from Transform are Mario Rivas, Chief Executive Officer, Premant Parikh, Co-Founder and Chief Operating Officer, and Cameron McCauley, Chief Financial Officer. Before we begin, I'd like to point out that there is a slide presentation associated with today's call, which management will be referencing during the conference call. These slides can be accessed through the live webcast link in the Investor Relations section of Transform's website, and they will also be posted on a linked PDF subsequent to today's conference call. Additionally, during the course of this call, the company may make forward-looking statements regarding the company's financial position, strategy and plans, future operations, specific end markets, and other areas of discussion. It's not possible for the company or management to predict all the risks, nor can the company assess the total potential impact of all factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statement. In light of these risks, uncertainties, and assumptions, the forward-looking statements discussed during this call may or may not occur, and actual results could differ materially and adversely from those anticipated or implied. Any projections as to the company's future performance represent management's estimates of today, February 9th, 2022. Neither the company nor any person assumes responsibility for the accuracy or completeness of the forward-looking statement. The company undertakes no obligation to publicly update forward-looking statements for any reason after the state of this call to conform such statements to actual results or to change in the company's expectation. For more detailed information on risks associated with the company's business, we refer you to the risk factors described in Transform's S-1, 10-KT, and other subsequent filings with the SEC. With that, I will now turn the call over to Transform's CEO, Mario Rivas, for opening remarks. Mario, please go ahead.

Thank you, Savannah. Welcome to everyone on today's call, and thank you for joining us. Product revenue increased sequentially for the eighth consecutive quarter and grew 220% year-over-year to a quarterly record of $3.6 million. We shipped over 1 million SuperGAN Gen 4 FETs for 45-watt to 300-watt power adapter and fast charger applications in December of 2021. We increased the total designings for power adapters and fast chargers to over 50. with over 20 of them in production. And the total design-ins for higher power, between 300 watts and 4 kilowatts, increased to over 30 with 20 of them in production. We closed the 12.9 million non-broker private placement of common stock at $7.71 a share in December, bringing the total amount of equity financing closed during the quarter to more than $45 million. cash and equivalents as of December 31st, 2021 was $41 million. With that, allow me to pass the call to Prima to work through the developments in more detail over the past few months.

Thank you, Mario, and good afternoon, everyone. As you just heard, Transform has continued our record product revenue traction for yet another quarter, achieving key milestones as we had talked, demonstrating capability to deliver over a million adapter parts in a month and strengthen our balance sheet with strong investor support. Like before, I will start with a quick recap of GAN, overall value proposition, TGAN, leadership position, and clarifying our views on market positioning of various type of GAN, including clarifying some misinformation floating out there in the market, and then move to reviewing our team's strong execution on various fronts in December quarter, That sets us up now for an exciting 2022. What is gallium nitride? It is a part of the wide bandgap semiconductor material family that is becoming the new present and future of power conversion because it reduces energy, eliminates electrical waste, enables compact power conversion, and lowers power system costs across a variety of electrical energy conversion applications and does this much better than silicon and also better than other new material semiconductors like silicon carbide. Transform, T-G-A-N, T-GAN is an established innovator and leading manufacturer supplier of GAN power semiconductors over the widest range of applications from lower power to higher power. from adapters and fast chargers to higher power data center, mining, crypto mining, communications, broad industrial renewables, and in designing for automotive electric vehicle applications. Our strong technology and world-leading intellectual property, more than 1,000 patents, and our products have been validated by our Blue Chip investors, customers, partners, including financial, IC design solution partners, manufacturing, and automotive industry leaders. Our talented team has relied on our core and complete GAN manufacturing capability, allowing control and innovation with our asset-light vertically integrated models that has yielded our comprehensive product portfolio with more than 30 billion hours of field operation, having delivered 21.5 million revenue in the calendar year 2021. Transform is in a very unique position of strength. to have products in the market today that addresses a tremendous multi-billion market opportunity, or Gantam, as we call it, for power conversion, from lower power to higher power. And there are markets that we are already ramped in today. For example, the power adapters and chargers, higher power server crypto data compower, and now ramping in industrial energy and renewable markets. which are also moving for us now from the mid-term to the more closer near-term regime. And mid to long-term, the largest growth opportunity remains in automotive electric vehicles. This Gantam, as you can see on the right, in the multi-billion dollar range over the next few years, and a further inflection point through the EV powertrain segment, middle of the decade, and we believe reaching $10 billion Gantam opportunity by end of the decade. Across this gamut of applications, transform GAN solutions deliver high efficiency, compact systems with easy to use products for the customer with proven performance benefits against silicon carbide, silicon, and other GAN solutions. What is necessary and we aspire to do every day is deliver a combined spectrum of benefits to all power conversion customers. by taking the inherent benefits of gallium nitride over silicon-silicon carbide to the next level. Our core GAN FET architecture delivers performance with high efficiency over a wide range of power levels with leadership in product qualification and reliability. Field reliability now rivals that of standard silicon. Our asset-light vertically integrated model allows for in-house GAN supply with control, innovation, and ability to scale. While others are now talking, which is a good thing, about getting into higher power with GaN, we have been there for a while now and have sent benchmarks for titanium-class GaN power supplies more than three years ago, and in process also built up core intellectual property. And we are not stopping at 650 volts or 900 volts, where Transform has the only GaN product in the market, but are now pursuing advanced R&D with 1,200 volts, which we think is well in the realm of GaN not just silicon carbide domain anymore. The TGAN FET is directly compatible with leading silicon controllers and their inbuilt integrated drivers, no extra components or shrubbery required to interface our GAN with the outside world. And this is manifested in our growing ecosystem of solutions partners as we will review. And finally, our strong IP portfolio that I alluded to, five to 10 times bigger than some competition in GaN, covers not only how GaN is made, but also how it is used in many ubiquitous power application architectures, for example, like the bridge topology. As a result, T-GaN has enabled our customers with products that range from adapters to automotive, from lower power to higher power, from 30 watts to 30 kilowatts, for example, Realizable by our Gen 5 10 kilowatt class solution in a multi-phased application. Every major category of power conversion can be targeted now, including automotive converters and chargers, and in the future, electric vehicle powertrain inverters as well. Shifting gears to some of these verticals now, from lower power to higher power, and then why we win. As the GAN adoption is happening fast now, many good companies are in the market. The market needs multiple companies to grow at a fast rate and to support the customers, especially at lower power. This is happening with Transform having the distinction of being in market both at lower power and higher power, allowing the customers to do more with less and a simpler architecture and bill of materials with our GAN solutions. One of the things we try in earnest is not to confuse the market and to do our best as to how GAN, any GAN, can help the customer win. Indeed, there are some misinformation or myths, as we call it, that sometimes get spread around and confused about gallium nitride. So first of all, no matter what you call your GAN, normally off operation is what the customer and the application has always demanded in power. That has been a constant. There are many good ways of doing it, which is up to the individual companies. For example, term terminologies like e-mode approach or d-mode approach or whatever the mode is. At the end of the day, one needs to deliver the best performing and the most reliable normally of GAN. That is what matters. Performance is delivered by superior underlying GAN technology and coupled with solutions working with the customer. There is no universal one-size-fits-all quite yet. For example, here we show on the right a transform GAN solution, TGAN FET, outperforming an e-mode GAN, in this case happens to be an IC variant, in the same third-party customer testing, only as an example. Then there are all kinds of claims about megahertz switching and fast frequency, so on and so forth. The fact is that years ago, we have taken our normally off GAN to one megahertz, thousand kilohertz, 99% efficient operation. And that too at higher power, one kilowatts, which is more challenging. This is high frequency operation is a system design trade-off. Heat losses, transformer losses, everything has to be keeping in mind. So we work closely with our customers. Of course, as far as the power switch is concerned, the fundamental GAN, that is due to the inherent nature of GAN. It is not due to any particular IC or other topology. Good GAN will switch fast. And finally, a lot is talked about integration and drivers, and it is very important. But one often ignored fact is that modern-day controllers, many modern-day adapters and charger controllers, especially at lower power, have integrated drivers basically for free. As it turns out, in our architecture, we integrate a small silicon flat with our GAN. There is no extra driver needed at all in these cases, especially at lower power. So integration is about where, what, how you integrate to give the best advantage to your customer. In the table below, we list out some of our differentiated benefits that we apply both to adapters and chargers for mobile and laptops, 45 watts to 200 watts plus, which is a key market trend in the last couple of years. The shift for adapters and chargers to GAN, very exciting for the GAN world. There are multiple good offerings from various companies at the lower power end, which is growing, and Transform is also moving fast in this area, as evidenced by the million units shipped in December. As you see here, silicon obviously has been working great in the past, but now falls short in efficiency, speed, and small size required for new products. GaN launches from here. Transform GaN excels in ease of use and flexibility, compatibility with standard drivers, No extra bond components or shrubbery needed to interface our GaN to the external world, which means cost-effective, easy to use. The intrinsic GaN performance, which is our basic GaN material and device, is fully exploited to achieve highest efficiency or lowest losses among many other GaN adapters. And the ability to go to higher power levels, and reliably so, where The PGAN implementation, the so-called PGAN in the e-mode rendition, off the normally off, presents a weaker input interface and a weaker device. Another important reminder is power conversion application, again, span from low to mid to high and then also very high power levels. Today, out of the GAN offerings, and this is what, to our best of the knowledge, of released products in the market by customers, Our customer systems, not just stock for the future, transforms GAN spans from 30 watts to 10 kilowatts, and in a three-phase it can be even higher, as we have demonstrated with our Gen 5 products. Many competing offerings may vie for higher power in the future, but today they are limited to lower power. So why does TGAN win? First of all, our success at higher power comes from the underlying stability of the TGAN FET architecture. that allows it to be offered in industry standard thermally robust packages like the TOs, the TO247, which today's emote gallium nitride finds it difficult to do because of inherent device weakness. Better materials capability for a GaN device that switches better and higher power from a smaller or lower current die versus that of competing GaN solutions and proven reliability with high yield manufacturing of large area GaN power chips. And now with these attributes, what these attributes have enabled us to do is build up a strong ecosystem of solution partners, notably manufacturers of controllers and integrated drivers. This includes market companies like Diodes, innovative controller companies like Cylana, and a few others who we have not publicly announced yet. In just the last few months, our partners and Transform Together have rolled out four more charger designs and solutions, three of them at the higher power range higher power range in this low power adapter and charger market at the 100 to 250 watts and one 45 watt implementation where our solutions now cover this fast charger space from 45 watts to 250 watts. TGAN architecture that is high performing and very easy to design in with our solution in the ecosystem. has allowed us to now increase the design ins to more than 50, with over 20 of them in production. We show a sample of this here, including the recent design wins that include, and as we highlight here, 100 watts, 150 watts, and 250 watt adapters and chargers for laptops and other applications. The higher power space, as I have said, is extremely important. Higher the power, higher the energy saving, higher the impact of GAN. And on a holistic level, the impact of electricity usage and carbon footprint. So here, some of our Gen 4 and Gen 5 offerings now are compared to leading silicon carbide products in this space because other gallium nitride, the emote type of gallium nitride, is not quite ready today, at least for higher power, especially in thermally robust packages like the TO247. As an example shown here, our highest power 15 milliohm product. By the way, to the best we can tell, this is the lowest R1 for a qualified ramped 650 volts gallium nitride in a discrete TO247 package. It outperforms silicon carbide, whether it be the MOSFET or the JFET, both very good products by strong companies in a standard package, in a standard bridge circuit, 25 to 38% lower losses. and ability to deliver 10 kilowatt power level from a single part in a half-bridge configuration. Again, why does gallium nitride and transform win? Because, number one, gallium nitride offers lowest losses and highest performance of leading power semiconductor materials, thus extending the Moore's law, as we term it, of power conversion, enabling performance output power density, in this case, to continuously increase by time, with time. Gallium nitride on silicon, which is a transform platform in the market, our products are made of GaN on silicon today, utilizes lower-cost silicon substrates. And after the GaN epi-wafer step that we have full ownership of, we are not limited to just an external foundry, for example. Our solutions and any GaN on silicon, for that matter, will leverage a full silicon wafer fab manufacturing, something, again, the transform has joint ownership of, control of, in our Japan Fab Joint Venture. And then the proven reliability, automotive qualifications, robustness in the field. So customers have selected our higher power offerings across the spectrum. Whether it is crypto mining, which is an extreme power hungry application where our titanium class efficient gallium nitrate solutions have enabled a 1% efficiency increase. And by the way, one system at that 1% can save a few hundred kilowatt per hour and 200 pounds of carbon footprint equivalently. What we expect is more than 50,000 metric tons of savings can be possible from what we estimate our 2022 outlook just in the crypto and the gaming segments combined together. Top right in the server power space, we have, along with our customers, enabled titanium-rated power supplies for well over three to four years now. Other GaN suppliers are now trying to follow suit in this domain, which is great. Efficiency, compactness of GaN has enabled leading gaming suppliers to adopt T-GaN solutions, increasing power by 6% to 7%, while at the same time decreasing system size by more than 10%, and being able to do so pricing the final power supply the same price as their older generation silicon solutions. And then there is a variety of industrial, energy, military, high-rel, and e-mobility solutions from 500 watts to four kilowatts where Transform is winning. We aim to grow this higher power segments and maintain our leadership position here. Electric vehicles are a key focus area for GaN and Transform. As we know, silicon carbide has done very well in this segment and GaN with its core capability, the fundamental capability I just showed is poised to enable long-term benefits to the EV marketplace. Essentially, GaN helps address the barriers of slower charging and range anxiety that stem from power losses and the heat constraints due to the heavy, bulky converter and inverters with inefficient silicon-based electronics. Transform has automotive-qualified, AEC-qualified products today. The Gen 4 high power already ramped in the market in various commercial applications. Not only that, but we are targeting to stay ahead in this game by enabling, in future, 1,200-volt gallium nitride and taking on silicon carbide there. We will announce R&D results in this area in future. All in all, we look forward to gallium nitride improving the electric vehicle range by 10% to 20% in future, or even more, depending on the efficiency enabled, and with higher power in a small form factor enabling faster charging. The acceleration of the EV opportunity and the aggressive adoption scenarios worldwide makes the longer-term scenario for GAN hyper-attractive. The specific GAN opportunities in EV today are in the areas of OBCs, onboard charger, DC-DC converters, off-grid DC to AC auxiliary inverters, and over the next several years, we will have unlocking the drivetrain inverter opportunity, something we are very closely working with our strategic partners. That will triple the accessible GAN content for automotive. We aim to be in the market with 650 volts products today and higher voltage solution in future for all the key EV slots. Next, we move into our December quarter performance and key vectors driving our growth. First and foremost, we are happy to say that we delivered on what we had said. achieving 152% revenue level from the first half of the year to the second half of the calendar year, with key highlights of maintaining dominance in the GAN high-power segment and gaining footprint in the adapter market, including the important milestone of 1 million shipments in December. Second, as evident, we have delivered multiple quarters of product revenue growth now, launching on top of our licensing and government revenue business. The key business focus now is on expansion and scaling revenue, product revenue. We outline here several key metrics that we achieved during the last quarter and put them in perspective as to future growth. First, product revenue in the quarter was 3.6 million, our eighth successive record quarter in this department, with $1 million of government revenue making up the rest. TGAN continues to grow its share in the adapter and fast chargers areas, now with over 50 design-ins, out of which over 20-plus are in production. We look forward to growing, especially in the 100-watt-plus segments. You can call it a higher range of the lower power adapter area. And we are really pleased to have new solutions and reference designs, not only by Transform, but also our valued partners who like the T-GEN solution over, say, the e-mode type of solutions because of our ease of interfacing and no external drivers needed, designability and drivability. We are pleased to lead in the GAN for the higher power. Broadly speaking, 300 watt to 4 kilowatt is in production today, and many of these applications in the 1 to 4 kilowatt range, where we increase the design-ins to now over 30, out of which more than half are in production. We aim to grow and further get into areas like energy, PV power, e-mobility, where we are opening up new design-ins. We have 17 products in our wide portfolio. Low power to high power, 650 volts and the only 900 volt product in the market. In surface mount packages and PO type of packages. Three of these are automotive qualified parts already. And we will continue in future to expand this product offering to meet our customer and market needs. Very importantly, now a significant emphasis and positive challenges will be a shift in focus on capacity expansion, and managing production growth in what is still a challenging worldwide supply chain environment expected to be there for next couple of quarters. We made a very important proof point in our adapter product capacity with the 1 million parts in December and now have expansion efforts underway for wafer capacity, both internal and external. Three key takeaways, basically. We had the record quarter product revenue growth with Transform and our partner solutions. penetrating the market, focusing on supply chain execution, and planning for capacity initiatives. To that end, we have started moving on the previously announced Global Wafers Partnership that we talked about last time. Global Wafers is also an investor in Transform for epi-wafer expansion to support significant expected 2023 demand. Our WaferFab joint venture with our financial strategic partner remains on track and looking ahead for various initiatives there also to be ready for higher ramps in the future. We are working through our industrial and automotive partnerships that remain solid. In the area of servo drives and robotics, Yaskawa is a key partner for Transform. We had a milestone deliverable delay that has shifted some of the cash payment receivables by a quarter or so, but overall no major program change. with Nexperia, who is our licensee and semiconductor partner, and especially they look to expand GAN in the automotive and EV area. Our next milestone here is our Gen 5 AEC automotive qualification, our Gen 5 already having achieved commercial qualification and introducing the market, the AEC automotive qualification we expect by middle of the year. Morelli is now moving to targeted product development phase with our Gen 4 and 5 products, for onboard charger and DC-DC converter. And also the Transform product today supports up to 50 kilowatts of prototype inverter, the drive train inverter, that can be achieved by paralleling our higher power Gen 5 devices. We continue design-ins with other Japan-based EV for 2023, 2024 DC-DC and OBC opportunities. That remains on track. The government revenue and the epi business remains steady as well. On the epi side, this is RF epi wafers. We increase our traction with DOD customers. We continue to support them. And we are also engaged with a couple of commercial designs. Still, we are awaiting the progress feedback there with the cycles of learning at our customers. The Navy program is running exactly to plan. And like I mentioned, we also have innovative 1200 volts R&D, which is in part supported by an R&D grant and contract from ARPA-E Department of Energy. With that, a quick recap of our major announcement in the last quarter and in January, starting with Yaskawa convertible to equity, the Gen 4 automotive qualification, continued partnership with Diode Zinc, highlighting the superior performance and ease of use of our gallium nitride, financial investments, over 45 million that have strengthened our balance sheet, success in the GaN adapter area, and of course, today, our product revenue, record product revenue quarter. All in all, we are very excited to be in the midst of an all-round GaN adoption growth phase with Transform and our worthy fellow GaN companies in the market. T-GaN focus remains in expanding our leadership in the high-power GaN, growing our footprints in the adapters and fast chargers, and capacity expansion, keeping up first with the demand and then, next year, staying well ahead of the demand curve. With that, I'd like to turn over to Cameron for our financial results.

Thank you, Pramit, and hello to everyone joining us today. Let me start with some financial highlights. For my remarks, I will refer both to GAAP and non-GAAP results, which are reconciled to GAAP in our press release table. Non-GAAP results exclude stock-based compensation, depreciation, amortization, and adjustments to the fair value of our convertible note. Starting with the income statement, Q3 FY22 saw a continuation of our growth story. Total GAAP and non-GAAP revenue comprising product and government was $4.6 million in the quarter, compared to $3.3 million product and government revenue from the prior quarter and $2 million for the equivalent quarter in 2020. This quarterly and year-over-year increase was driven by record product sales from ramping shipments, including over 1 million units shipped in the month of December. This growth is supplemented by continued execution on our three-year government contract. Focusing more now on product sales, the three months to September saw our eighth successive quarter of product revenue growth and record product revenue of $3.6 million. But comparing this quarter to the same quarter last year, product revenue grew by over 200%. This growth is being driven across a broad range of power conversion applications, including fast chargers and adapters, gaming, data center, and crypto mining. Cost of goods sold were $3.9 million in the quarter, an increase of 102% year-on-year, below the revenue increase of 129% over the same period. This COGS increase is largely driven by strong volume growth across several market segments. We have also increased our manufacturing personnel and are, as Primate mentioned, investing in incremental capital equipment to support our product growth. Operating expenses on a non-GAAP basis were $4.4 million in the current quarter compared to $4.5 million in the prior quarter. When comparing non-GAAP OPEX to the same quarter in the prior year, we saw a 20% increase. This growth has been primarily driven by an expansion in our sales and applications team to support our increased revenue, together with one-off compliance costs tied to our year-end change. Coming to EPS, I will focus my remarks here on non-GAAP results. The revenue growth allied to continued OPEX management resulted in non-GAAP EPS loss of $0.09 in the quarter, a $0.04 improvement on the equivalent quarter in the prior financial year. Turning now to the balance sheet, across all aspects of the balance sheet, the December quarter saw significant improvement. Initially, assets. The company had total assets of $55 million as at 31 December, more than three times the equivalent number in the prior quarter. This was driven by strong raise activity, adding in excess of $45 million before fees to our balance sheet and resulting in a cash balance of $41 million at the end of the quarter. This raise included strategic partners such as SES Global Waiver, together with strong institutional investment from MCM and Boardman Bay, amongst others. Operational burdens did increase in the quarter, primarily due to the timing of receipts and funding tied to our development agreement with Yaskawa, funding we anticipate to receive in the near future. Inventory also increased to support our improved traction and will enable continued revenue growth. The company also significantly reduced its liabilities to $18.6 million as of December 31. This is just over 50% of the $34 million liabilities that the company had as of 30 September. The key driver here was a successful conversion of the $15.6 million note that the company held with a long-term customer partner and now shareholder, Discover. This combination of funding activity, loan conversion and our ongoing focus on cost and working capital management have significantly strengthened our balance sheet and improved our stockholders' equity position by over $55 million in the quarter. It is through these developments that we believe the company is very well positioned to meet the qualification requirements for uplisting our common stock to the NASDAQ. This is an ambition that we will continue to pursue and are working internally to realise this. Coming to the next slide and transitioning from our financial performance, I wanted to touch on position. The company is very well positioned to grow across multiple segments, including consumer, data centres, crypto mining, industrial, EPI, and in the long term, the EV market. We are right now at a stage where we are seeing strong adoption and, as illustrated in our presentation today, strong revenue growth. Revenue traction exists today in several segments, including consumer, data centers, crypto, and industrial applications. A key proof of this traction being the shipment of over 1 million units in the month of December. Looking ahead, our strong balance sheet will allow us to continue to invest in our growth engine across all aspects of the company. With this strong foundation in place, our focus turns to execution, ensuring that we can support the growing demand and what we believe will be a broad market inflection point in the medium term. In addition to our existing revenue streams, we do expect to see initial revenue in the automotive segment in this timeframe. From there, the company will drive toward our long-term target model, enabled by continued momentum across multiple segments, now including automotive. Turning now to the next slide, where I'd like to reiterate our long-term operating model. We are in the process of building a high-growth, cash-generative business. The company has multiple revenue streams, including government, In the current year, we have continued to generate solid revenue from both licensing and government contracts, and this is being supplemented by significant growth in product revenue. As mentioned earlier, product revenue has grown eight quarters in succession and has become a much greater proportion of our overall revenue in the year, growing from 17 per cent to around 50 per cent. This growth has been driven across a broad range of power conversion applications, including fast chargers, adapters, gaming, data centers, crypto mining. We achieved annual product revenue growth of 200% in the last fiscal year and are targeting a continuation of this trajectory moving forward. From 2023 onwards, as we continue to ramp up production revenue across our target segments, product will form over 90% of our revenue. As with our current year, this growth is coming from multiple segments and not simply consumer. Automotive revenue will further contribute to this multi-segment growth in 2023. This consistent, rapid acceleration in our product revenue allows TGaN to target a five-year annual CAGR in excess of 50%. From a margin perspective, our strong product portfolio, now including Gen 4 and Gen 5 parts, together with our manufacturing excellence, will translate our sales into a gross margin in the 40% range. The company will continue, as it is currently doing, to invest to support all aspects of our core operations, this stable existing structure allowing us to translate gross margins into developing an operating margin that we believe will be in excess of 20%. Concluding now with a few key highlights. Transform is a pioneer and leading provider of GaN power conversion devices. We have disruptive technology that provides solutions across a number of significant growing markets. We have established a strong network of blue-chip partners, including KKR, Morelli, SES Global Wafer, Yaskawa, and others. We are commercially ramping, with strong production revenue growth now growing for eight successive quarters, and have a comprehensive product offering today that meets our customers' needs across a wide range of power levels and segments, all of which is underpinned by a strong balance sheet, the industry's strong IT portfolio, and a very deep, talented team. This concludes our prepared materials and remarks, and we'd now like to open the call to any questions. Operator, please proceed with managing the Q&A portion of the call.

Thank you. And as a reminder, I would like to let you know that it is star one to ask a question, and we'll pause for a moment to compile the Q&A roster. And we will take our first question from David Williams. Please go ahead.

Hey, Joanne. Thanks so much for the question, and congrats on the continued execution here. um just maybe maybe a little sorry a little bit of color so you you shipped the one million in in december and if we kind of think about that that cadence going forward is this kind of a level set that we should think about expanding on as we go through uh maybe from a monthly basis to it does this flow maybe can we draw a state line maybe a million this quarter and then continuing or what do you think there'll be some set down or or maybe just any any color around that that trajectory would be helpful

Thank you, Dave. The one million, like we said, was a key benchmark as a reminder of the capacity efforts that we have put in one of the large orders. There is some seasonality definitely in the adapter business. It's not quite exactly one million, one million. We also focus on our mix of higher power to lower power, all various segments. It's not exactly a month-to-month. Usually, the December numbers are in this adapters were good for us. But the core, the fundamental point there is now we have established capacity including multiple sources of packaging that allows us to do more than that when required in future. But it won't be exactly two things like that, a million, million in that terms. We have various mix of products, packaged products, dye products, higher power products. So it really depends on the customer mix in any given quarter.

Okay, very fair. Thank you. And any way to kind of think about maybe the mix that you did ship this quarter, just kind of thinking about its wide power range, a lot of units, how did that mix shake out? Is there a way maybe to quantify the magnitude of lower, maybe the 45 versus maybe the upper end of that 300 watts?

In the adapter space itself, it was more focused on 65 watts was the was the high runner there. And in the adapter space, and as you look at the complete different lower power adapters versus higher power, we had a good, of course, units-wise it is very different because a 4-kilowatt TO247 is a different part than a 65-watt adapter, a PQFN. But in that adapter space, it was definitely the 65 watts which was the front runner.

Okay, fantastic. And Dermot, you before have kind of talked about the differential in your packaging and what it allows you to do, especially in the higher power. Can you maybe step us through that again, and maybe just so we all have a better understanding of the importance of the packaging and why that matters?

Sure. So the key to high power, right, and this is physics that nobody can change, is that heat needs to be taken out, right, from the die, which is GAN or whatever semiconductor maybe, to the package, through the heat sink, to the outside world. That is just basic physics. That cannot be violated. So traditionally, the higher power folks have light, thermally robust packages, which nicely interface to a heat sink, have a good thermal resistance, contribute to good thermal resistance performance like the TO packages, TO247 in particular, which has been an industry for runners. Silicon Carbide uses it extensively. GAN uses it. But what happens in those TO packages is that there is input voltage swings that happen in the application. And it happens in any application, but especially in the TO packages combined with GAN. or the higher power packages, and our transforms GAN solution with the integrated approach of the silicon FET and the GAN together, bringing out the best of both worlds, is really immune to such input voltage fluctuations, whereas the other approach of achieving normally off, which is this e-mode approach, the input of the device in that is weaker and more susceptible to those signals. So what they have to do is put it in different packages, and which means for the same power, you may need to parallel two packages where we could have done it or redo it with one package, for example. So the crux of the matter is the fundamental weakness of the E-mode P-type GAN gate that manifests itself in this fashion. In the future, things will improve, but that is the crux of the matter, which we have exploited. Gallium nitride, silicon carbide also for that matter, is widely offered in TO247, gallium nitride being our gallium nitride.

Okay. Fantastic. Certainly appreciate the color there. Very helpful. And then maybe one last one, if I can, maybe for Cameron. If you kind of think about the opportunities ahead of you and the limited resources, how do you think about your investments going forward, maybe over the next six to 12 months? And where do you see the greatest need for investment? And I guess, do you get to a point, maybe a tipping point, where you begin to maybe need to focus more on the higher quality or the higher value products versus the higher volume? Or do you think you have enough capacity and resources to run those kind of simultaneously, just kind of given the strength of the design that you've had over the last several quarters?

We certainly have, David, a very good solid balance sheet now, and that gives us the opportunity to invest, invest both in CapEx, as Pramit mentioned, to bring up the capacity, to enable higher volume. And we're also investing in personnel. There's, you know, across different aspects of the company, whether that's sales and applications, we have invested in personnel. in developing our manufacturing team and growing that. And, you know, we'll continue to do that, David. I think the great thing about the company is the strong base that we've established and the strength that we've got across a number of different parts of the company. And it's building on it rather than really investing in one area more than the other. It's a gradual growth.

Great. Thanks so much. And best of luck on the quarter. But congrats on the solid quarter. Thank you.

And our next question will come from Amanda Averua with Loop Capital. Please go ahead.

Yeah, good afternoon, guys. Thanks for taking the questions. And, yeah, congrats on the strong revenue performance. Really nice to see. A couple for me, if I could. On the fast charging and adapter revenue that you guys are driving, could you describe to us the market share gains? Dynamics, you know, Prymit, I think you talked in your paper marks that the need of interfacing and the need for no external driver, you know, plays a role in your design-in. You know, is that one of the main drivers of the share gain? Is it really happening at the design-in level? Is there anything in addition to that? Just context around the share gain dynamic would be great. And then I have a quick follow-up.

Yeah, at two key levels. One is that, right? So our parts, we've been saying for a while, our parts are easier to design in because they seamlessly interface with the outside world, can use. We don't need external drivers. We are already using integrated drivers that come with the controllers. So what is this like to, right? Now, this is like to more solutions partners and solutions with TransformScan, external solution partner companies like Diodes and Celana, as well as our solutions, and Others like that we have not announced. So this ecosystem has basically helped amplification of our resources, our market footprint to create this penetration. And second, actually our performance of the GAN itself, our fundamental GAN device, to the best of our knowledge, inherent GAN device is still higher performance because of superior switching characteristics that our basic device design, our materials capability, as the materials capability and device design enables. So both those reasons, ease of use and higher performance.

Performance makes a lot of sense, too. Yeah, that's helpful. Thanks. And another one to that end, are you guys, are these sole source agreements that when you win a design in, is it entirely sole source on transform GANs?

They come in various mixes and flavors. Typically what we find is the larger companies may require multiple sources, at least on paper. Some do use in this area multiple sources. Some basically effectively may end up becoming sole source, whether with somebody else's GAN, frankly, or our GAN. But, yeah, it is important to have, at least on paper, multiple sources agreements. That said, some of the folks who go, especially when we go in with a strong partner solution, right, a complete solution, we have got some bins that are sole source, while others, especially the larger players, will always want multiple sources.

I guess, and this makes sense, and then I guess once you get in, even through a multi-source situation, you know, you're going to have stronger performance, it's easier to use, you know, et cetera, et cetera. You can gain share once you're inside as well. That makes a lot of sense also.

Correct. And this, like I've said before, this is a very large market. I liken it many times to the GAN LED market that was booming in the late 90s and the 2000s, where multiple good companies and solutions were required to sustain a very large market worldwide. That's super helpful.

And it was either you or Mario who also said that the demand contribution, I think the term broadly was used and talked about, you know, across crypto mining, gaming, I think it was across crypto mining and gaming. I don't know if data center was mentioned. But I guess the question was, are you seeing momentum in crypto mining? I think last quarter you had mentioned that gaming had been strong. And strong is my term. You may not have said it exactly like that. But it was robust and nicely contributive. I got the sense that crypto was a little stable and data center was a little on the calm side. But I just wanted to ask about that because the comment was made that the demand, the strength this quarter kind of was more broad, and I think crypto was also mentioned. But I guess any context around what you saw the last 90 days in crypto gaming and the data center? And I guess to that end, any context about what you're expecting there as we go through the year? Thanks a lot, Nick.

Yeah, what we can say in the recently completed quarter of the higher power products, crypto was the leading share of our higher power products in the last quarter. Data center is steady and we expect, especially like we have said in past, I didn't explicitly say this time, but the new regulations coming out in the European regulations, especially in the data center requiring titanium class power supplies, by January 2023, we expect to see and uptick in the data center based higher power apps by second half of this year or later Q4 of this year.

Got it, got it. And gaming just kind of remains, is robust the right way to say it? It sounds like things are going well there. Correct. Our steady customers are remaining robust. Very helpful. And then just one quick clarification for me. At the very end when you were going through, the long-term model, was it – did you say initial auto revs in 2023?

Yes, that's right, Ananda. We're looking at late 2023 for initial automotive revenue. Awesome.

Thanks, Cameron, for the clarification. Great. Thank you, guys.

And our next question will come from Richard Shannon. Please go ahead.

Well, thanks, guys, for taking my question. I think I'll follow up on the topic of kind of applications for your product revenues here. Maybe ask another way here. How much of your product revenues or maybe your adaptive revenues are coming from, you know, quote, unquote, high-power stuff, you know, watts and above? Any way you'd characterize or quantify that for us?

In the adapter portion, Richard, in the last quarter, the majority of the revenue in the adapter portion was centered around 65 watts. That said, the trend is to now get to 100 watts, 140 watts is another important slot where our partners, the diodes and us, have solutions together, and then also moving into 200 to 250 watts. But last quarter shipments, the dominant application was 65 watts.

Okay, that is helpful. Quick question on some numbers here. Gross margins in the December quarter, if I calculate right around 16% or so, was a little bit lower than the last quarter without a big licensing chunk in there two quarters ago at 21. I think I heard you say some increased cost investments and capacity. I don't know if there's any mix or yield dynamics in there. If you could help us understand why that went downwards and kind of what you expect going forward this year.

Sure. Certainly, licensing is one of the key things that, Richard, as you highlight, it's essentially 100% margin. And we did invest in the team. We added several headcounts to support the growth, not just in Goleta, but also in our ISU facility. I think, you know, near term, I think that we'll see our margins kind of steadily increase, you know, a combination of volume, continued focus and improvement on efficiencies and obviously increased fixed cost component as well. And the long-term model remains the same as we target that 40% gross margin in the longer term.

right right okay perfect last question i'll jump out of line here on the automotive space here you've talked about uh the kind of initial revenues and automotive in 2023 um I didn't hear you say anything about having any design wins with an automotive OEM. I know you've got relationships with tier ones like Morelli as an example, but I'm assuming you don't have any wins with OEMs yet. In order to hit this timeframe of auto revenues in 23, when do you have to have a design win in place where you'd be able to announce that right away? And then how many of these wins do you expect to maybe have this year?

It's a kind of end of the year, early 2023, because when we say, you know, towards the end of 2023 automotive revenue, we mean kind of production revenue. So that would be for, you know, this automotive, it's a way the cycles work. It's also our revenue will be one or two quarters ahead of our customer's revenue, and that may be going to an OEM. So it will precede. a car model by as much as six months, right? When we have to ship our product, that's how the automotive supply chain is typically structured. So this would be basically for 2024 models, so to speak. And we would expect in this case, the end of the year or early 2023 to confirm, obviously the design in process is moving along at every node, but that's what we would expect in that timeframe. Now, independent of Transform, with Transform's licensed technology, our good partner Nexperia, they are independently moving the automotive EV, their design-ins, in which we will supply wafers and fab wafers and epi wafers. So, that would be another source of revenue, automotive revenue for us that may happen ahead of that timeframe.

Perfect. Thanks for that detail. That's all from me for a minute. Thanks.

Our next question will come from Michael Manny. Please go ahead.

Hi, this is Michael on for Craig. Thanks for letting me ask a couple of questions, and congrats on the positive momentum you're seeing. My first question is on the renewables and alternative energy markets. I believe you mentioned that some of these opportunities have pulled into more of the intermediate and near-term. Could you talk about what changed there to allow that to happen, if anything? And would these be material contributors in 2022, or is this more of a 2023 and beyond driver?

Yes. So, thank you. So, first of all, our traction in the high power, the 1 to 4 kilowatt segment, 1 to 5 kilowatts with crypto, data centers, gaming, this has allowed the market also to recognize the potential of transform again, now hundreds of thousands of units have been ramped. Free performance has been established. So in part that, and our continued designing efforts, uh, uh, has allowed us to do that in, in some, for example, some inverter opportunities or energy storage, UPS, those kinds of applications. So yeah, we do see in 2022 and it was, it was going to be very expecting that was in our planning. And the good thing is it's getting realized now. So we do see that happening in 2022.

Great. Thank you. My next question is on your visibility. So, you know, it's nice to see the growing number of design wins. And while acknowledging it's early, Could you characterize the level of visibility you have into the second half of this calendar year with either your high-volume charger adapter ramps? I think you mentioned we'd see some uptick in your higher-power offerings like data center, and you talked about renewable energies too. But in general, what else could you elaborate on the rest of your visibility, and to what extent could some of these new design wins that you mentioned secure start to convert into production?

Yeah, no, we do expect this newer design means both a lower power stay, lower power area and higher power area to start, not necessarily every single one of them, but a lot of them we expect to convert to design ends. And our goal will be to keep growing product revenue quarter over quarter, right? That's the key. And the demand remains very strong, so we are very excited by that. It will also be managing together our supply chains worldwide and increasing our capacity. That will complete the picture. But, yeah, we are very excited. The demand remains extremely strong, and we do expect a lot of those designs to convert, and we do expect our product revenues to keep growing quarter over quarter. Thank you very much.

Thank you.

Our next question will come from Oren Hirschman with AIGH Investors.

For one minute, guys.

Please go ahead.

Hi, how are you? Congratulations on the progress. Thank you. In terms of your, again, it's been asked in different ways, but maybe this is a slightly different way of asking it as well. In terms of the design wind across the chargers, as we go up the power scale, are you seeing a higher wind rate, a notably higher wind rate as we go to higher power on the handset chargers? Yes.

Like I said, the 65 watts, which is the highest volume in the market today, that was our – by extension, that was also our highest win. We saw newer wins. Of the newer wins we saw, we did see adoption in the higher power. So those are the three we highlighted. It doesn't mean we didn't get the 65, but, yeah, you're right. We are seeing in the 100, 140, and 250 watts, we are seeing some nice – nice winds as the market, a lot of the market is at 65 watts, but slowly it may move to higher power levels, right, 90, 100, 140, and even higher than 200.

Okay, and in terms of realizing the gross margin goal, you discussed a little bit as to what needs to happen. How important for that is just the absorption aspect of it in terms of if nothing else changed? Would that drive a good piece of the gross margin gains to get the right target?

Indeed. The absorption of our fixed costs and the capacities, et cetera, as we have already put in, that is one of the key drivers of the gross margin, and I let Cameron elaborate on that.

Yes. Yeah, I think that's one of the several, Oren. I think volume will help, obviously, in terms of price competitiveness, in terms of yield, and continuing to focus on efficiencies in our product offerings. So I don't think there's any one factor. I think it's a few. But certainly, the more revenue we have, the less impactful fixed cost absorption is. That's certainly true as we continue to grow.

And the last question for me would be just in terms of the pricing delta on the handset offerings from higher, from the base level towards the highest tower. What's that delta like? Is it a meaningful delta where the highest ones are 20%, 30% higher in terms of ASPs? How should we view that as well?

The ASPs actually range on the adapter side. It's sort of under $1 for 65 watts, kind of the $0.70, $0.80, $0.90 regimes. 45 watts would be a bit lower than that. On the higher power side, on the crypto mining, the data center, gaming, the new 3-kilowatt part, you're looking at kind of $4, $5, those kind of ASPs. And as you go to our highest power part, for energy that, you know, the 5 to 10 kilowatt part, you're looking at, you know, $7, $8, those kind of ASPs. So it's a 10x because our parts have power capability or the current carrying capability of the parts is indeed a 10x difference. So that's reflected in the ASPs.

Okay, great. Thank you very much.

And with no further questions, I would like to turn the call back to Mario Rivas for closing remarks.

Thank you, Savannah. I want to thank everybody again for joining us on today's call. I'm looking forward to reporting on our continued progress and developments over the coming year. Operator, you may now disconnect the call.

And this concludes today's conference. Thank you for your participation, and you may now disconnect.